September 20, 2013 / 12:01 PM / 4 years ago

FOREX-Dollar inches off post-Fed lows, near-term outlook bleak

* Dollar selloff loses steam, index still near 7-month lows

* German election outcome this weekend key for euro

* Dollar/yen risk reversals flip towards more dollar gains

By Anooja Debnath

LONDON, Sept 20 (Reuters) - The dollar edged off a seven-month low against a currency basket on Friday after investors unwound some negative trades put on after the Federal Reserve this week unexpectedly maintained the pace of its bond-buying.

Although the dollar saw marginal gains, also due to above-forecast U.S. data on Thursday, analysts said it was likely to be weighed down in coming days by uncertainty over Fed policy.

The dollar index was flat at 80.37, a little above Wednesday's seven-month trough of 80.060.

"I don't see any recovery in the dollar just yet. FX markets didn't react too much to the positive U.S. data. That shows there is still a lot of concern about the Fed's future monetary policy," said Lutz Karpowitz, currency analyst at Commerzbank.

Thursday's data suggested rising market rates, which had concerned the Fed, were weighing only modestly on the economy.

Some analysts felt the dollar's longer-term uptrend was still intact.

"The main takeaway from Wednesday is that Fed tapering is delayed, not that it has been removed. At some point the Fed will move to taper and we will see U.S. yields move a bit higher and support the dollar," Sara Yates, global currency strategist at JP Morgan Private Bank.

Barclays Capital strategists expect the Fed to start tapering in December 2013 and hike rates in June 2015.

The euro was up 0.1 percent at $1.3545, having hit a 7-1/2 month high of $1.3569 on Thursday. A large options expiry was reported at $1.35.

Analysts said the euro could see a marginal impact from Germany's general election on Sunday.

Chancellor Angela Merkel is seeking a third term but there are doubts she will be able to maintain her centre-right coalition, which could complicate her euro zone policy.

The euro was up 0.1 percent at 134.60 yen, not far from the near four-year high of 134.95 yen hit on Thursday.

The dollar was flat at 99.39 yen. Options traders cited renewed demand for dollar upside strikes. One-month risk reversals showed a slight bias towards dollar calls or bets the greenback will gain versus the yen, against a bias in favour of dollar puts just before the Fed meeting.

The yen sold off broadly on Thursday as risky assets rallied after the Fed's decision. Investors tend to sell the yen in favour of higher-yielding assets when risk appetite is strong.

The Japanese currency stayed close to lows hit on Thursday, including a three-month low versus the Australian dollar, its weakest in nearly four years against the euro and a 23-year trough versus the Swiss franc.

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