* Focus on Fed minutes after weak U.S. data
* Overseas investors sold $120 bln of U.S. assets in Dec
* Yen rebounds after Tuesday's losses
By Laurence Fletcher
LONDON, Feb 19 The dollar hit a seven-week low
against the euro on Wednesday and its lowest level this year
against a basket of currencies, weighed down by soft U.S. data
ahead of the release of minutes from the Federal Reserve's
The euro rose as high as $1.37735 during Asian
trading, its strongest level since January 2. The dollar later
gained ground, leaving the euro last trading down 0.1 percent at
$1.3744, with equity markets offering investors little
Tuesday's New York manufacturing and U.S. housing data were
the latest numbers out of the United States to disappoint
investors, increasing pressure on the dollar.
The numbers bolstered the case for the Federal Reserve to be
patient in its tapering of its huge bond-buying programme, ahead
of the minutes from the January policy meeting when the Fed
opted to trim asset buying by another $10 billion.
The data also pushed Treasury yields lower, with the yield
spread between 2-year Treasuries and German 2-year
Bunds down over the past week offering less support to the
Against a basket of major currencies, the dollar index
fell as low as 79.927, its lowest level this year, before
recovering to trade up slightly on the day at 80.044.
"It (the weak U.S. data) is certainly in the background.
There's been a period of nearly three weeks where U.S. data has
come in pretty consistently below expectations," said Simon
Smith, FxPro's head of research.
"It's not as obvious as previously that saying the Fed would
taper quantitative easing ... is decidedly dollar bullish."
Nevertheless, most strategists still expect the Fed to keep
tapering, barring a major economic shock, although some think QE
could continue into next year, driven by the need to keep
economic growth going.
"Our economists expect today's FOMC minutes to ... (say)
that the tapering process remains on track and is unlikely to be
interrupted barring a significant shock to the economic
outlook," said Adam Cole, head of G10 FX strategy at RBC
Capital, in a note.
"In other words, a $10 billion reduction per meeting should
be everyone's base case."
The Canadian dollar hit a one-month high at C$1.0911 per
U.S. dollar. The loonie has been a favourite short bet
for hedge funds in recent months, and while the recent rally has
been painful for managers, many have still made money on their
EQUITY FLOW GAP
Meanwhile, Treasury figures showed overseas investors had
sold almost $120 billion of U.S. assets in December.
Alan Ruskin, global head of G10 currency strategy at
Deutsche Bank in New York, noted that the net outflow from U.S.
equities over 2013 has amounted to a huge $214 billion.
In contrast, the euro zone attracted inflows into stocks of
111 billion euros. At the same time, the euro zone enjoyed a
record current account surplus of 216 billion euros while the
United States ran up a deficit of almost $400 billion.
"That the euro was the strongest major currency in 2013 is
easily - with all the benefit of hindsight - explained by this
current account and equity flow gap," Ruskin said.
"For USD strength to broaden and also encompass the euro, a
turn in the 'equity gap' is one precondition."
The yen rebounded from Tuesday's falls, which were prompted
by the Bank of Japan's decision to extend and expand a scheme to
promote bank lending.
The dollar was 0.4 percent lower against the Japanese
currency at 101.93 yen, with options expiries at the
101.50 and 102 yen levels, said one London-based trader.
Betting on dollar-yen was one of the biggest hedge fund
trades for the start of 2014, and with the dollar having
finished last year at 105.275 yen the trade is now showing
The euro was also down 0.5 percent at 140.08 yen.