* Dollar recovers from 6-month low vs euro
* Weighed down by Fed tapering doubts
* Market awaits Fed minutes due later on Wednesday
By Anooja Debnath
LONDON, Aug 21 The dollar inched off a six-month
low against the euro on Wednesday but was kept in check by
concerns over how much light U.S. Federal Reserve minutes due
out later will shed on when the bank will begin trimming its
Speculation that the U.S. central bank will begin reducing
its $85 billion a month in asset purchases from September has
underpinned the dollar while lifting Treasury yields.
The minutes of the Fed's July meeting are due at 1800 GMT.
"The Fed minutes are very important, and perhaps some are
getting worried that risks are tilted towards a disappointment,"
said Kasper Kirkegaard, FX strategist at Danske Bank.
"Our main scenario is that the Fed will begin tapering in
September. If the Fed shows any concerns about low inflation or
that they need to see a further improvement in the labour
markets before tapering, it could send the dollar lower."
But any moves lower in the dollar were unlikely to be
drastic as investors have already begun unwinding their long
dollar positions in recent weeks.
The dollar was up 0.2 percent against a basket of
currencies at 81.12, but still close to Tuesday's two-month low
The euro was down 0.2 percent at $1.3389. But it
stayed near Tuesday's peak of $1.3453 - its highest since Feb.
14 - which was hit as the yield premium that 10-year U.S.
Treasury notes offer over German Bunds narrowed.
The 10-year U.S. Treasury yield has come down
from a two-year high of 2.90 percent set on Monday, as
speculation on the Fed stimulus scaleback roiled emerging
markets and added a safe-haven element to U.S. debt.
In the options market, overnight implied volatility rose on
growing uncertainty about the Fed's stimulus plans. Demand to
hedge against excessive price swings usually rises during times
of financial uncertainty.
A gauge of overnight euro implied volatility
spiked to around 10.6 on Wednesday from the previous session's
close of around 6.4, according to Thomson Reuters data.
Strategists said the euro's further rise would be capped as
the European Central Bank looks set on keeping interest rates at
their current record low of 0.5 percent to support the economy
as the Fed backs away from its accommodative stance.
"Even though we broke above the key level of $1.34
(yesterday), there was no strong follow through in the movement.
That tells me there aren't too many investors ready to put on
euro longs against the dollar," said Niels Christensen, FX
strategist at Nordea.
The dollar rose 0.2 percent to 97.46 yen, edging
away from a one-week low of 96.91 yen set on Tuesday.
Strategists said the yen was weighed down by comments from
the Bank of Japan Governor Haruhiko Kuroda that he will not
hesitate to provide further monetary stimulus if downside risks
to the economy increased.
Analysts at Morgan Stanley said they maintain their bullish
dollar/yen outlook and "consider pullbacks as providing buying
"The apparent change in tone by the BoJ's Kuroda, suggesting
that they would not hesitate to ease if downside risks increase,
is likely to help put the yen back on its weakening trend."