Dollar on defensive after sideswipe from dovish Fed minutes

February 18
10:15 PM 2015

The dollar was on the defensive against the yen and euro on Thursday, paring gains after minutes of January's Federal Reserve policy meeting showed officials were concerned about hiking interest rates too soon.

The greenback was little changed at 118.73 yen JPY= after coming down from a peak of 119.41 scaled overnight. The dollar index was down 0.1 percent at 94.102 .DXY after shedding 0.4 percent overnight.

"The two pillars of a strong dollar scenario, first being strong fundamentals and the next being June rate hike expectations, are beginning to wobble," said Junichi Ishikawa, market analyst at IG Securities in Tokyo.

In the minutes issued on Wednesday, Fed policymakers expressed concern that raising interest rates too soon could chill the U.S. economic recovery. They also noted the potential negative impact from global factors such as China's economic slowdown and fighting in the Middle East and Ukraine.

U.S. debt yields, which spiked midweek and shored up the dollar, promptly declined in wake of the minutes' release.

The euro was steady, fetching $1.1400 EUR= following a pull back from the previous day's low of $1.1334. The euro has traded in a 2-cent range for more than three weeks.

"The euro is quite stable amid the Greek risk...the immediate focal point is how risk assets fare going forward, as they have performed relatively well despite Greece. Heightened risk appetite may eventually prompt players to cover euro shorts," Ishikawa said.

The common currency could receive more support depending on the outcome of ongoing negotiations between Greece and its creditors, a major source of volatility for the euro.

Greece is expected to ask later in the day for an extension to its loan agreements with theeuro zone as it faces running out of cash within weeks.

This seeming concession by Greece after weeks of haggling with creditors would give the euro some relief, but Athens must first overcome resistance from skeptical partners led byGermany.

Sterling traded at $1.5438 GBP=D4, holding to a swathe of territory won overnight when it hit a 1-1/2 month high of $1.5480 after data showed strong growth in British wages.

The currency market was slightly robbed of liquidity with most of Asia excluding Japanaway on Lunar New Year holidays.

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