* Dollar index falls to three-week lows
* Fed minutes taken as dovish, U.S. yields drop
* Better-than-expected U.S. claims help dollar trim losses
* Swedish crown hit by inflation data (Updates prices, adds comment, U.S. data, changes byline, dateline; previous LONDON)
By Gertrude Chavez-Dreyfuss
NEW YORK, April 10 (Reuters) - The dollar dropped to three-week lows against the yen and the Swiss franc on Thursday after minutes of the Federal Reserve’s March meeting disappointed investors positioned for a gradual tightening in monetary policy.
The greenback has fallen versus the yen in four of the last five trading days. Against the Swiss franc, the dollar has weakened for a fourth straight session.
The dollar, however, trimmed losses against the yen after better-than-expected U.S. weekly jobless claims, suggesting an improving labor market. Data showed U.S. weekly claims fell to 300,000, lower than the consensus forecast of 320,000. The jobless claims level was near a seven-year low.
But the market’s broad focus was on the minutes of the Fed’s March 19 meeting released on Wednesday. They showed officials were worried the U.S. central bank’s forecasts on interest rates might appear to investors to be mapping out a more aggressive cycle of rate hikes than was actually expected.
“The minutes were laced with dovish undertones,” said Scott Smith, senior FX trader and market analyst, at Cambridge Mercantile Group in Calgary, sending “market participants into a ‘risk-on’ buying frenzy.”
Investors also viewed the discussion in the minutes about the amount of slack in the labor market as dovish, all of which left the dollar struggling against most major currencies.
The dollar was down 0.1 percent versus the yen at 101.89 yen, having fallen to 101.39, its lowest since March 19. The dollar slipped against the Swiss franc to 0.8768 franc, its lowest in three weeks, as U.S. two-year Treasury yields fell sharply.
The greenback last traded at 0.8788 franc, down 0.1 percent.
“The Fed minutes are pushing back rate hike expectations from the middle of next year to the latter part of 2015,” said Jane Foley, senior currency strategist at Rabobank.
“The yen is also being supported by a pullback in risk sentiment after those Chinese data and disappointment earlier this week that the Bank of Japan will not ease policy soon.”
The dollar index hit a three-week low of 79.421, well below a seven-week high of 80.599 set only last Friday. It last stood at 79.524, flat on the day.
The Swedish crown, meanwhile, was the big mover in Europe. It fell to its lowest in 3-1/2 months against the euro amid higher-than-usual volumes after inflation data fell short of expectations and cemented expectations the Riksbank will cut interest rates in coming months.
The euro was last at 9.0577 crowns, up 0.9 percent.
Given the dollar’s struggles, the euro also inched higher to $1.3867, up 0.1 percent. But traders are wary of pushing it higher, given expectations that the European Central Bank could step up its rhetoric against a strengthening currency and its impact on disinflation.
Bundesbank chief Jens Weidmann reiterated on Thursday that if there is a prolonged period of low inflation, the ECB will consider unconventional instruments. Last week, ECB chief Mario Draghi flagged the chances of quantitative easing. (Additional reporting by Anirban Nag in London; Editing by James Dalgleish)