FOREX-Dollar retreats from three-year high but strength seen returning
* Dollar pauses after index hits 3-year high as investors take profit
* Dollar uptrend intact as Fed policy contrasts with ECB, BOJ, BOE
* Fed minutes on Wednesday eyed
* Euro helped near term as Greek aid disbursement likely
By Julie Haviv
NEW YORK, July 8 (Reuters) - The dollar pulled back on Monday as investors booked profits after the U.S. currency hit a three-year high against a basket of currencies in the wake of last week's strong U.S. jobs data.
The employment report raised expectations the Federal Reserve could soon scale back its stimulus. Analysts said the greenback should resume its uptrend as the Fed looks poised to power down its massive stimulus program as early as September if economic data continues to improve.
In contrast, the European Central Bank and the Bank of England were more likely to ease monetary policy, while the Bank of Japan was expected to continue with aggressive stimulus, keeping the euro, sterling and yen weak.
Global economies are lagging the strength seen in the United States, which was made further evident by German data showing exports in May falling the most since late 2009.
The data suggests Europe's largest economy is struggling to regain traction, although a rise in imports pointed to robust domestic demand.
In late morning New York trade, the dollar index was down 0.2 percent at 84.254, having earlier hit 84.588, its strongest since July 2010.
"Market consensus is that the Fed will now begin to taper as early as September with all eyes on this Wednesday's FOMC notes as traders look for clues from some of the more hawkish members of the board," said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York.
The Fed is scheduled to release on Wednesday the minutes from its June Federal Open Market Committee meeting.
"Even if the Fed remains stationary for a while longer, U.S. yields are likely to rise in anticipation of growth and that should prove constructive for the dollar," Schlossberg said.
The divergence between the United States and other major economies is clear in bond markets, with 10-year Treasury yields spiking 23 basis points on Friday to around 2.75 percent, highs last seen in August 2011. The spread between Treasury and bund yields gapped to the widest since 2006.
The dollar was last down 0.1 percent at 101.08 yen, having earlier hit a one-and-a-half month peak of 101.53 yen.
"The dollar's strength over the course of last week was especially swift, I think the speed was overdone and so this setback is normal," said Ulrich Leuchtmann, head of FX research at Commerzbank. "Now markets are positioned to take profits from these moves, but this is simply a pause."
Leuchtmann added that while he still expects the dollar to strengthen broadly in the longer term, the move higher will not be smooth as there was scope for further corrections.
The euro was last up 0.3 percent at $1.2864, but not far from a seven-week trough of $1.2805 plumbed on Friday.
Analysts said the euro would find it tough to make any significant gains against the dollar after ECB President Mario Draghi's pledge that interest rates would stay low for an extended period.
The euro's gains accelerated as Draghi spoke to the European Parliament's Economic and Monetary Affairs committee.
Among the comments made, Draghi said "Overall, euro area economic activity should stabilize and recover over the course of the year, although at a subdued pace."
"The risks surrounding the economic outlook for the euro area continue to be on the downside," he said.
The single currency was helped by news that Greece looks likely to reach a deal with foreign lenders on its latest bailout review and by an improved political situation in Portugal.
"It looks like we will have a clearer diversion, with growth gaining momentum in the U.S. and the euro zone bumping along the bottom," said Niels Christensen, currency strategist at Nordea.
"I expect interest rate differentials to continue to move in favour of the dollar and to pull euro/dollar lower."
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