* 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 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
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
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
"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.