FOREX-Euro inches higher, eyes on Fed minutes

Wed Jul 9, 2014 3:55am EDT

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By Patrick Graham

LONDON, July 9 (Reuters) - The euro traded marginally stronger on Wednesday, with traders looking to a speech by European Central Bank chief Mario Draghi and the minutes of the U.S. Federal Reserve's latest meeting for direction later in the day.

The single currency may have been helped by a relatively downbeat assessment of the pace of U.S. growth from two Federal Reserve officials overnight.

Markets are still waiting for more strongly hawkish signals from the Fed in favour of higher interest rates next year that many expect eventually to drive U.S. bond yields higher and the dollar with them.

"Its really been very quiet," said Daragh Maher, a strategist with HSBC on Monday. "With the minutes today (Fed chair) Janet Yellen was reasonably dismissive after the meeting of any upside threat in inflation, so it will be interesting to see if that mood is the same with others at the Fed."

Against a basket of major currencies, the greenback traded marginally lower at 80.152. It was 0.04 percent lower against the euro at $1.3617.

Against the yen, the dollar has fallen all the way back to levels seen before a strong jobs report last Thursday, hurt by a retreat in U.S. Treasury yields from last week's highs. It held steady at 101.63 yen on Wednesday.

"I think the contents of the minutes might turn out to be dollar-positive," said Masafumi Yamamoto, market strategist for Praevidentia Strategy in Tokyo.

"Whichever data you look at, the inflation rate (in the United States) has been rising and I'm not sure that can be dismissed as just noise."

KIWI RISING

The New Zealand dollar inched up to a three-year high of $0.8819, adding another quarter of a percent after a surge on Tuesday triggered by an improvement in the outlook on one of its sovereign credit ratings.

The kiwi has gained around 9 percent since January on the back of a steady rise in domestic interest rates; it is the only developed world economy in which borrowing costs are rising.

"There's reasonable momentum in the kiwi," said HSBC's Maher. "I quite like it against the Australian dollar - the question there is does it have the strength to break through 105 (cents). It may do." (Additional reporting by Ian Chua and Masayuki Kitano, editing by John Stonestreet)

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