* Dollar index rises to highest in seven weeks after upbeat
* Fed minutes cautious on QE3 taper, but yields rise anyway
* Euro under pressure ahead of ECB policy meeting
* China inflation data eyed in Asia
By Ian Chua
SYDNEY, Jan 9 The dollar hovered at seven-week
highs against a basket of major currencies early on Thursday,
having risen for a second session after an upbeat private-sector
jobs report drove U.S. short-term yields and market rates
The dollar index rose as far as 81.166, a high not
seen since late November, after a report showed private
employers added a bigger-than-expected 238,000 jobs in December,
the strongest increase in 13 months.
The data lifted hopes that non-farm payrolls on Friday will
surprise on the upside and pushed 2-year Treasury yields to a
four-month high of 43 basis points.
Fed fund futures sold off with big losses seen in
the late-2015 through to 2018 contracts, such that a first hike
in rates is now fully priced for July 2015. Just last month it
was not priced in until early 2016.
Yet, minutes from the Federal Reserve's Dec. 17-18 meeting
showed the central bank wanted to err on the side of caution
even as it began to scale back its massive bond-buying stimulus.
Traders said recent data suggested the world's biggest
economy is well on a recovery path that should allow the Fed to
continue to withdraw extraordinary support over 2014, a view
that seems to be gaining traction in markets.
"Our economist thinks the FOMC is on track to continue
tapering in measured steps, on course for ending asset purchases
by the end of this year. Against this backdrop, we remain
constructive on the U.S. dollar," analysts at BNP Paribas wrote
in a note to clients.
The dollar rose to a one-week high of 105.135 yen
before steadying at 104.82, while the euro slid to a one-month
low of $1.3554.
The common currency is likely to stay under pressure in the
lead up to the European Central Bank policy meeting on Thursday
and could fall further if the ECB highlighted the risk of
disinflation, traders said.
The euro fell to a one-year low on sterling, reaching 82.38
pence, and also retreated against the yen to 142.42
from Wednesday's high of 143.19.
The Australian dollar lost ground against the broadly firmer
greenback, dipping back below 89 U.S. cents as it continued to
relinquish last week's gains.
The Aussie's fortunes will depend on local and Chinese data
due later in the day. Any upside surprises in domestic retail
sales should provide some support.
As for China's inflation data, the market expects consumer
inflation to have eased to a four-month low of 2.7 percent in
Such an outcome should be welcomed by markets as it will
provide Beijing with room to keep macro policies stable in order
to push on with structural reforms.