* Fed minutes on Wednesday a focal point for the week
* Dollar index firmer, stays above recent 7-week low
* Stock market reaction to Fed minutes seen key for dlr/yen
By Masayuki Kitano
SINGAPORE, Aug 19 The dollar inched higher
versus a basket of currencies on Monday, with the near-term
focus on the minutes of the Federal Reserve's July policy
meeting due later this week.
Moves in the greenback were subdued overall, with the dollar
index edging up 0.1 percent to 81.352 and staying above a
seven-week low of 80.868 set earlier in August.
The greenback struggled to gain traction even as the U.S.
10-year Treasury yield set a fresh two-year high of about 2.871
percent on Monday, having exceeded Friday's peak of
U.S. Treasury yields have been rising recently on the back
of market expectations that the Fed could start scaling back its
bond-buying programme as early as September.
Such expectations have been bolstered in recent sessions by
some encouraging U.S. data, including a drop in weekly jobless
claims to a near six-year low.
Still, while higher U.S. yields can increase the
attractiveness of dollar-denominated assets and give a boost to
the dollar, the impact has been offset recently by an
improvement in euro zone and UK economic indicators, which have
given a lift to the euro and sterling and kept a lid on the
A focal point for markets this week is the minutes of the
Federal Reserve's July 30-31 policy meeting, due to be released
"July's FOMC meeting minutes will be closely read to see
whether officials were concerned about the summer rise in U.S.
market interest rates holding back the recovery," Mansoor
Mohi-uddin, head of foreign exchange strategy for UBS, said in a
weekend research note.
"If the minutes still point to the FOMC committee continuing
to consider slowing down bond buying, the dollar will benefit,"
Against the yen, the dollar edged up 0.2 percent to 97.69
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.
"The short-term outlook will depend on what happens to
equities," he said. "If they fall further, we could see a
risk-off type of short-covering in the yen," Fukaya added.
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.
The euro eased 0.1 percent to $1.3324, having backed
off Friday's intraday peak of $1.3380. Still, the single
currency was not too far from a seven-week high of $1.3401 set
on Aug. 8.
While the euro has been supported by a recent run of solid
European economic data, such a situation probably won't last for
too long, said Daisuke Karakama, market economist for Mizuho
Bank in Tokyo.
"I think the April-June GDP will be the peak for the euro
zone this year," Karakama said.
Data released last Wednesday had shown that 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
"Since Europe will probably worsen from here, I think there
will be a phase when the dollar starts to attract demand against
the euro," Karakama added.
The Australian dollar edged up 0.4 percent to $0.9215,
having risen to as high as $0.9234 earlier, where it met heavy
technical resistance. Traders suspected that the bounce had more
to do with how short the market had been than any other factor.