* Upbeat U.S. Q2 GDP partly offset by mixed Fed views
* Dollar index set for biggest monthly gain in over a year
* Nonfarm payrolls, euro zone inflation are next focus
By Jemima Kelly
LONDON, July 31 The dollar held just below a
10-month high against a basket of currencies on Thursday after
the Federal Reserve said it was in no rush to raise interest
rates, tempering a rally that dates back to early May.
Dollar bulls took heart on Wednesday after a report showed
the U.S. economy rebounded sharply in the second quarter, with
gross domestic product grew at a 4 percent annualised pace.
But the Fed's affirmation of a broadly relaxed stance on
monetary policy gave food for thought to those who wanted to
push the greenback further.
Adam Myers, head of currency strategy at Credit Agricole in
London, said the dollar still looked strong but that gains,
particularly against the euro, may be almost over for now. The
dollar index is up more than 2 percent so far this month, on
track for its biggest monthly gain in more than a year. It
traded at 81.457, just off Wednesday's high of 81.545.
"The market is now a little bit too far ahead of itself -
there's not going to be any Fed interest rate rises in the first
half of 2015 and that's what the market is pretty much pricing
in at the moment," he said. "It will only take a weak payrolls
number and we'll see quite a snapback."
Data due on Friday is expected to show that U.S. employers
added 233,000 new non-farm jobs in July.
The euro was flat in early European trade after hitting a
9-month trough of $1.3366 on Wednesday.
Data on Thursday will show whether euro zone inflation
tumbled further in June. Economists polled by Reuters expect it
stayed at 0.5 percent but some put the number as low as 0.3
A lower-than-expected number could fuel expectations of
further easing from the European Central Bank and in turn weigh
on the euro. Data on Wednesday showed annual inflation in
Germany slowed to 0.8 percent in July.
"An outcome in line with our forecast (0.3 percent) would
constitute a downward surprise and likely weigh on the euro,"
said analysts at BNP Paribas in a note. "This should not be a
game-changer for the ECB as policymakers will take time to fully
implement and assess the impact of the June policy actions."
The two-year Treasury yield jumped to its highest
in more than three years at 0.59 percent, which in turn helped
boost demand for the U.S. dollar.
Against the yen, the greenback climbed to a four-month high
of 103.15, before steadying at 102.80. It was poised to
gain about 1.4 percent on the month against the yen.
The dollar also fared well against higher-yielding
currencies such as the Australian dollar, which plumbed a
two-month low of $0.9301 before edging back to $0.9310,
down quarter of a percent.
(Reporting By Jemima Kelly; Editing by Larry King)