* Dollar index rises to highest in seven weeks after upbeat ADP data
* Fed minutes cautious on QE3 taper, but yields rise anyway
* Euro under pressure ahead of ECB policy meeting
* China inflation data eyed in Asia
By Ian Chua
SYDNEY, Jan 9 (Reuters) - The dollar hovered at seven-week highs against a basket of major currencies early on Thursday, having risen for a second session after an upbeat private-sector jobs report drove U.S. short-term yields and market rates higher.
The dollar index rose as far as 81.166, a high not seen since late November, after a report showed private employers added a bigger-than-expected 238,000 jobs in December, the strongest increase in 13 months.
The data lifted hopes that non-farm payrolls on Friday will surprise on the upside and pushed 2-year Treasury yields to a four-month high of 43 basis points.
Fed fund futures sold off with big losses seen in the late-2015 through to 2018 contracts, such that a first hike in rates is now fully priced for July 2015. Just last month it was not priced in until early 2016.
Yet, minutes from the Federal Reserve’s Dec. 17-18 meeting showed the central bank wanted to err on the side of caution even as it began to scale back its massive bond-buying stimulus.
Traders said recent data suggested the world’s biggest economy is well on a recovery path that should allow the Fed to continue to withdraw extraordinary support over 2014, a view that seems to be gaining traction in markets.
“Our economist thinks the FOMC is on track to continue tapering in measured steps, on course for ending asset purchases by the end of this year. Against this backdrop, we remain constructive on the U.S. dollar,” analysts at BNP Paribas wrote in a note to clients.
The dollar rose to a one-week high of 105.135 yen before steadying at 104.82, while the euro slid to a one-month low of $1.3554.
The common currency is likely to stay under pressure in the lead up to the European Central Bank policy meeting on Thursday and could fall further if the ECB highlighted the risk of disinflation, traders said.
The euro fell to a one-year low on sterling, reaching 82.38 pence, and also retreated against the yen to 142.42 from Wednesday’s high of 143.19.
The Australian dollar lost ground against the broadly firmer greenback, dipping back below 89 U.S. cents as it continued to relinquish last week’s gains.
The Aussie’s fortunes will depend on local and Chinese data due later in the day. Any upside surprises in domestic retail sales should provide some support.
As for China’s inflation data, the market expects consumer inflation to have eased to a four-month low of 2.7 percent in December.
Such an outcome should be welcomed by markets as it will provide Beijing with room to keep macro policies stable in order to push on with structural reforms.