* Dollar pauses after index hits 3-year high as investors
* Dollar uptrend intact as Fed policy contrasts with ECB,
* Fed minutes on Wednesday eyed
* Euro helped near term as Greek aid disbursement likely
By Julie Haviv
NEW YORK, July 8 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
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
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
"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
The euro's gains accelerated as Draghi spoke to the
European Parliament's Economic and Monetary Affairs
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
"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."