* Aussie drops after more dovish-than-expected RBA minutes
* Caution ahead of Fed meeting, concerns about Iraq crisis
* Sterling back off 5-year highs; BOE minutes awaited
By Patrick Graham
LONDON, June 17 The Australian dollar fell
around half a percent on Tuesday after the country's central
bank expressed more doubts about what is proving to be a messy
The euro, yen and dollar have been stuck in very tight
ranges for the past week, but there was plenty more for
investors on major currency markets to chew on.
Sterling fell on the back of lower than expected UK
inflation numbers, taking the edge off a recent surge higher due
to growing expectations the Bank of England could raise interest
rates before the end of this year.
By 1050 GMT it was flat on the day against the dollar and
euro at $1.6986 and 79.85 pence respectively.
An interview with another policymaker offered more fuel for
speculation the tide is turning at the bank toward a rise in the
premium for holding the pound. But dealers said
it may take a strong message from minutes from its last policy
meeting, due on Wednesday, to shift the currency back above
"We could well see one or two votes for a rate hike at the
last meeting when the MPC minutes are released tomorrow," said
Alex Edwards, head of the corporate desk at currency transfer
"The BoE's Governor may have been prepping the market for
such a scenario, but this recent inflation data will put a small
dent in expectations for a rate hike this year."
The pound had gained more than 1 percent, taking it
briefly above $1.70 for the first time since 2009, after Bank of
England Governor Mark Carney warned last Thursday the bank might
raise rates earlier than markets had previously believed.
The minutes from the Reserve Bank of Australia expressed
doubts as to whether it had done enough to stimulate the
economy, knocking about half a cent off the dollar.
"I'm not sure there was that much in the comments really but
we're in a slightly more risk-off sort of world at the moment
and that probably made the Aussie more sensitive to this sort of
message," said Daragh Maher, a strategist with HSBC in London.
The Australian economy, buffeted by a less certain outlook
for growth in China, is struggling to shift focus away from the
strong public spending and mining investment which has marked
"The transition in activity was never going to be as simple
or neat as hoped for amid numerous structural challenges," said
Sue Trinh, a strategist with RBC Capital Markets in Hong Kong.
"The RBA appears to be injecting a little more of that
uncertainty into its communication."
The Aussie was 0.5 percent lower at $0.9359.
EYES ON FED AND IRAQ
The dollar inched a touch higher but overall looked pinned
to a narrow range by caution ahead of this week's U.S. Federal
Reserve meeting and concern about escalating violence in Iraq.
Against the euro the greenback has struggled to build
on an almost five cent surge in the aftermath of action by the
European Central Bank two weeks ago to loosen monetary
conditions and stimulate a still-moribund euro zone economy. The
euro was last trading at $1.3568. Save for some minimal
volatility around German ZEW data, it traded broadly flat.
The Fed, meanwhile, is expected to announce a further
reduction in its monthly bond purchasing programme, but most
market participants do not expect a U.S. interest rate hike
"There's a lot of chatter about the Fed's 'Dots' projections
and what they say about where rates will be in 2015-16," said
HSBC's Maher. "We see them falling off a bit but I think a lot
of people are looking for them to rise, indicating a more
The Dot projections offer an indication from the Fed of
where it expects its benchmark Fed funds rate to be in the
Against its Japanese counterpart, the dollar ticked up just
over 0.1 percent to 101.97 yen, holding well above a
two-week low of 101.60 yen marked last Thursday.
(Editing by Mark Trevelyan)