FOREX-Dollar steady but ripe for gains before Fed minutes
* Wednesday's Fed minutes to shed light on U.S. tapering plans * Dollar supported by rising U.S. bond yields * Dollar index steadies above recent seven-week low * Stock market reaction to Fed minutes seen key for dollar/yen By Anooja Debnath LONDON, Aug 19 (Reuters) - The dollar held steady on Monday as investors refrained from fresh bets on the currency before U.S. Federal Reserve minutes that could strengthen expectations the central bank will taper its stimulus programme next month. The dollar index was flat at 81.298, well clear of a near two-month trough of 80.868 set on August 8. It failed to draw strength from rising U.S. 10-year Treasury yields, which hit two-year highs of about 2.871 percent on Monday. While higher U.S. yields make dollar-denominated assets attractive and boost the dollar, the impact on the currency has been blunted by an improvement in the euro zone and UK economies, which has underpinned the euro and sterling. The Fed publishes the minutes of its July 30-31 meeting on Wednesday, and uncertainty over what they will say about the pace and timing of the central bank's plans to trim its bond-buying programme is also inhibiting dollar trades. "The minutes could point to the Fed tapering stimulus next month. This, coupled with rising U.S. Treasury yields, could lead to some dollar strength this week," said Marcus Hettinger, global FX strategist at Credit Suisse. The euro was flat at $1.3324, having backed off Friday's peak of $1.3380 but still within sight of the $1.3401 it reached on August 8, which was its highest since June 19. Data on Wednesday showed the economies of Germany and France grew faster than expected in the second quarter, pulling the euro zone out of a 1-1/2 year-long recession. Euro zone manufacturing and services activity data released on Thursday could help support the euro but seems unlikely to push it much higher, according to strategists. Daisuke Karakama, market economist for Mizuho Bank in Tokyo said the euro would likely falter in coming sessions. "Since Europe will probably worsen from here, I think there will be a phase when the dollar starts to attract demand against the euro." Against the yen, the dollar edged up 0.1 percent to 97.59 yen. Traders reported a large options expiry at 98.00 yen. Chartists said if the dollar could break above the August 15 peak of 98.66 yen it could retest the August high of 99.955 yen. The impact of the Fed minutes on the dollar's moves versus the yen will hinge on the reaction of equity markets, said Koji Fukaya, CEO at FPG Securities in Tokyo. "If they fall further, we could see a risk-off type of short-covering in the yen," he said. Market expectations that the Fed will start scaling back its monetary stimulus have recently dented U.S. equities as well as Japanese shares, and given support to the yen, which tends to benefit in times of market uncertainty.
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