FOREX-Dollar inches higher but under pressure ahead of Fed minutes

Wed Aug 21, 2013 4:07am EDT

Related Topics

* Dollar recovers from 6-month low vs euro

* Weighed down by Fed tapering doubts

* Market awaits Fed minutes due later on Wednesday

* Dollar edges higher vs yen in thin trade

By Anooja Debnath

LONDON, Aug 21 (Reuters) - The dollar edged away from a six-month low against the euro on Wednesday but stayed under pressure on concerns the U.S. Federal Reserve might not provide clarity in its minutes about when it will trim its stimulus.

Speculation the U.S. central bank will begin backing away from its $85 billion a month in asset purchases from September has underpinned the dollar while lifting Treasury yields.

The minutes of the Fed's July meeting are due at 1800 GMT.

"The Fed minutes are very important and perhaps some are getting worried that risks are tilted towards a disappointment," said Kasper Kirkegaard, FX strategist at Danske Bank. "Our main scenario is that the Fed will begin tapering in September. If the Fed shows any concerns about low inflation or that they need to see a further improvement in the labour markets before tapering it could send the dollar lower."

But any moves lower in the dollar were unlikely to be drastic as investors have already been unwinding their long dollar positions in recent weeks.

The dollar was up 0.2 percent against a basket of currencies at 81.12, still within range of a two-month low of 80.754 hit on Tuesday.

The euro was down 0.2 percent at $1.3394, losing ground from Tuesday's peak of $1.3453 - its highest since Feb. 14 - as the yield premium that 10-year U.S. Treasury notes offer over German Bunds DE10YT=RR narrowed.

The 10-year U.S. Treasury yield has come down from a two-year high of 2.90 percent set on Monday, as speculation on the Fed stimulus scaleback roiled emerging markets and added a safe-haven element to U.S. debt.

"I think that the overall move higher in the euro lacks conviction, especially given that the ECB has provided dovish forward guidance," said Sim Moh Siong, FX strategist for Bank of Singapore.

At its policy meeting in early August, the European Central Bank (ECB) affirmed that interest rates will remain at the record low of 0.5 percent to support the economy.

The dollar rose 0.2 percent versus the yen to 97.48 yen , edging away from a one-week low of 96.91 yen set on Tuesday on trading platform EBS.

Traders said the yen earlier took its cues from moves in Japan's benchmark Nikkei share average, rising after the index slipped to its lowest since late June. The yen has been inversely correlated to moves in Tokyo shares in recent months.

Some strategists said the yen was weighed down by comments from the Bank of Japan Governor Haruhiko Kuroda that he will not hesitate to provide further monetary stimulus if downside risks to the economy increased.

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