FOREX-Dollar flat vs major rivals as focus turns to Fed minutes
* Fed minutes on Wednesday to shed light on U.S. tapering plans * Dollar index stays above recent near two-month low * Analysts caution dollar weakness should minutes sound dovish By Wanfeng Zhou NEW YORK, Aug 19 (Reuters) - The dollar traded little changed against major currencies on Monday with investors shifting focus to the release of Federal Reserve meeting minutes later this week which could offer clues on whether the U.S. central bank will cut back on its monetary stimulus next month. Analysts said the minutes from its July 30-31 meeting, which the Fed publishes on Wednesday, could stoke expectations that the Fed will start reducing its $85-billion per month bond purchase program. Such a move could further boost U.S. Treasury yields, enhancing the attractiveness of dollar-denominated assets. "It could just reinforce the view that the Fed is prepared to begin tapering sooner rather than later," said Eric Viloria, currency strategist at Forex.com in New York. "If the Fed does start to taper and other central banks remain accommodative and may even pursue more easing, that is going to be a positive for the U.S. dollar," he said. Uncertainty about the U.S. monetary policy outlook has pressured the dollar in recent weeks, driving it to a near two-month low. The dollar index was little changed on Monday, at 81.253, still above a low of 80.868 plumbed on Aug. 8. Expectations of a scaling back of Fed stimulus have driven U.S. benchmark yields to two-year highs. Higher yields make dollar-denominated assets attractive, but the impact on the currency has been blunted by the improving euro zone and UK economies, which have underpinned the euro and sterling. Some strategists cautioned that if the Fed minutes sounded dovish or failed to provide clues on its tapering plans, the dollar could falter. "The consensus is for the tapering process to begin next month. But if the minutes don't give any strong hints of that, there is a risk expectations start to drift from September to October," said Adam Cole, global head of FX strategy at RBC Capital Markets. "This gives the dollar a slight negative bias, although it is not an aggressive call." The euro rose 0.1 percent to $1.3344, within sight of the $1.3400 level it touched on Aug. 8, which was its highest since June 19, according to Reuters data. Analysts said euro zone manufacturing and services activity data due on Thursday could help the euro. The latest data from the Commodity Futures Trading Commission showed that currency speculators were bullish on the euro for the second straight week which ended on Aug. 13. Against the yen, the dollar edged up 0.4 percent to 97.96 yen. Chartists said if the dollar breaks above the Aug. 15 peak of 98.64 yen, it could retest the August high of 99.94 yen. While U.S Treasury yields have risen more than 10 basis points from last Friday's low to Monday's high, Japan government bond (JGB) yields have inched up by only around 2.0 basis points. As a result, the U.S.-Japan bond spread "continues to widen in favor of dollar/yen upside," strategists at UBS said. "We look for more spread widening over the months ahead as the Fed begins the process of QE3 tapering while the Bank of Japan continues to lean heavily on the JGB curve." QE3 refers to the Fed's third round of quantitative easing, an $85 billion-per-month bond purchase program.
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