February 20, 2014 / 12:30 AM / 4 years ago

FOREX-Dollar holds firm after Fed minutes support pace of taper

* Dollar pulls higher after Fed minutes show tapering plan intact

* Muted reaction to record Japan trade deficit

* Canadian dollar licks its wounds after sliding on dismal trade data

By Shinichi Saoshiro

TOKYO, Feb 20 (Reuters) - The dollar held firm against a basket of major currencies on Thursday, drawing support from minutes of the U.S. Federal Reserve which showed policymakers remained committed to reducing its massive stimulus at the current pace.

The euro was at $1.3731 pulling back from seven-week highs of $1.3773 against the greenback following the release of the Fed minutes on Wednesday.

The minutes of the Fed’s Jan. 28-29 policy meeting, which was former chairman Ben Bernanke’s last, showed several policy-makers wanted to emphasize that their asset-purchase program would be trimmed in predictable, $10-billion steps unless the economy’s performance surprises them.

Policy makers’ support for continued tapering nudged U.S. Treasury yields higher late on Wednesday, and provided some respite for the dollar.

Still, market participants remained cautious over the Fed holding up the pace of its tapering in the wake of recent data suggesting U.S. economic growth may be slowing.

“U.S. economic data have turned from good to bad lately. This raises the possibility of the Fed delaying its taper - which would boost safe haven currencies like the Swiss Franc,” said Bart Wakabayashi, head of forex at State Street Global Markets in Tokyo.

Wednesday produced another dim reading on the economy. Commerce Department data showed U.S. housing starts recorded their biggest drop in almost three years in January.

The dollar index had fallen as low as 79.927 on Wednesday against a basket of major currencies, its weakest this year. It rebounded after Fed minutes and was last up 0.20 percent at 80.19.

The dollar was up 0.1 percent at 102.40 yen, having pulled back from a low of 101.84 hit the previous day.

The pair’s reaction was muted to data released early on Thursday that showed Japan logged a record deficit in January, although participants say the Japanese currency is likely to come under pressure in the long term if the deficit persists.

The euro gave back some of the ground it had won against the yen as it flagged against the dollar. The common currency was at 140.48 yen after it hit a three-week peak above 141.00 yen on Tuesday.

The Canadian dollar licked its wounds after having tumbled more than one percent on Wednesday, its biggest drop in over two years, after dismal domestic wholesale trade data.

The Canadian dollar traded at C$1.1072 to the U.S. dollar , having slid from a one-month high of C$1.0911 hit early on Wednesday.

The 1.4 percent drop in wholesale trade was the latest in a series of negative economic figures for December, though some economists have blamed bad winter weather for the disappointing data.

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