The dollar recovered some ground against other leading currencies on Wednesday as foreign exchange trading began to return to normal levels following the holiday season.

The euro slipped slightly from $1.3276 to $1.3274, the pound was down from $1.9729 to $1.9637 and the dollar traded at ¥119.24 from ¥118.85 on Tuesday.

Analysts warned that the higher euro would take its toll on euro-zone manufacturing and reduce the likelihood of further European Central Bank interest rate rises.

"Euro strength is unlikely to extend far into 2007," Insinger de Beaufort chief economist Stephen Lewis told Dow Jones Newswires.

The higher euro could also impact on German exports, which have been one of the key drivers of euro-zone growth levels.

The dollar also appreciated on expectations that housing and economic data due to be released today will show that the markets rebounded in the last months of 2006.