* Wednesday's Fed minutes to shed light on U.S. tapering
* Dollar index stays above recent seven-week low
* Rising U.S. bond yields provided some support
By Anooja Debnath
LONDON, Aug 19 The dollar struggled on Monday as
investors held back before Federal Reserve minutes this week
that are likely to set a course for the currency depending on
how they affect the outlook for the Fed's stimulus programme.
The dollar index was down about 0.1 percent at
81.257, remaining well above a near two-month low of 80.868
plumbed on August 8.
It failed to draw strength from U.S. 10-year Treasury
yields, which hit two-year highs of 2.8750 percent.
Higher U.S. yields make dollar-denominated assets
attractive. But the impact on the currency has been blunted by
improvements in the euro zone and UK economies that have
underpinned the euro and sterling.
The Fed publishes the minutes of its July 30-31 meeting on
Wednesday. Uncertainty over what they will say about the pace
and timing of the central bank's plans to trim its bond-buying
programme put a damper on the U.S. currency.
"The minutes could point to the Fed tapering stimulus next
month. This, coupled with rising U.S. Treasury yields, could
lead to some dollar strength this week," said Marcus Hettinger,
global FX strategist at Credit Suisse.
Some strategists, however, cautioned that if the Fed sounded
dovish or failed to provide clues on its tapering plans the
dollar could falter.
"The consensus is for the tapering process to begin next
month. But if the minutes don't give any strong hints of that,
there is a risk expectations start to drift from September to
October," said Adam Cole, global head of FX strategy at RBC
"This gives the dollar a slight negative bias, although it
is not an aggressive call."
Against the dollar, the euro was up 0.2 percent at
$1.3356, within sight of the $1.3401 it reached on August 8,
which was its highest since June 19.
Analysts said euro zone manufacturing and services activity
data due on Thursday could help the euro.
Latest Commodity Futures Trading Commission data showed that
currency speculators were bullish on the euro for the second
straight week which ended on August 13.
Against the yen, the dollar edged up 0.5 percent to
98.03 yen. Traders reported a large options expiry at 98.00 yen.
Chartists said if the dollar could break above the August 15
peak of 98.66 yen it could retest the August high of 99.955 yen.
While U.S Treasury yields have risen more than 10 basis
points from last Friday's low to Monday's high, Japanese
government bond (JGB) yields have inched up by only
around 2.0 bps. This U.S.-Japan bond spread "continues to widen
in favour of dollar/yen upside," strategists at UBS said.
"We look for more spread widening over the months ahead, as
the Fed begins the process of QE3 tapering while the Bank of
Japan continues to lean heavily on the JGB curve."