* Weak U.S. data stokes uncertainty on Fed policy
* Fed meeting minutes due later Wednesday
* Dollar hits session low against yen
By Sam Forgione
NEW YORK, Feb 19 The dollar hit a seven-week low
against the euro on Wednesday and its lowest this year versus a
basket of currencies, weighed down by soft U.S. housing numbers
ahead of the release of minutes from the Federal Reserve's
latest policy meeting.
The euro rose as high as $1.3773, its strongest level
since Jan. 2. The dollar later gained some ground, leaving the
euro last trading flat on the day at $1.3763, with equity
markets offering investors little direction.
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.
On Wednesday, Commerce Department data showed U.S. housing
starts recorded their biggest drop in almost three years in
The numbers bolstered the case for the Fed to be patient in
reducing its huge bond-buying program, ahead of the minutes from
the January policy meeting when the Fed opted to trim asset
buying by another $10 billion per month.
Against a basket of major currencies, the dollar index
fell as low as 79.927, its lowest this year. It was last
to 80.043, little changed from late on Tuesday.
"We've had nothing but negative economic surprises and the
excuse that it is all weather-related is going to terminate very
soon," said Boris Schlossberg, managing director of foreign
exchange strategy at BK Asset Management in New York.
"If this reflects a more secular weakness, the Fed could
take a more dovish bent in the near term," he said.
Nevertheless, most strategists still expect the Fed to keep
tapering, barring a major economic shock, although some think
quantitative easing 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 dollar also hit a session low against the yen of 101.83
before paring losses and is currently down 0.1 percent at 102.24
Yields on benchmark 10-year notes slipped to 2.69 percent
form 2.71 percent the previous session.
The low yields are pressuring the dollar and keeping the
currency from gaining against the yen, said BK's Schlossberg.
"Until you see higher U.S. yields, you're going to continue
to see the dollar weaken against the yen," he said.
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 dollar strength to broaden and also encompass the euro,
a turn in the 'equity gap' is one precondition."
The yen, meanwhile, 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.
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 0.1 percent at 140.72 yen.