Euro, dollar steady, eyes on Fed minutes

[July 09, 2014]  By Patrick Graham

LONDON (Reuters) - The euro was steady against the dollar on Wednesday, with traders looking to a speech by European Central Bank chief Mario Draghi and minutes of the U.S. Federal Reserve's latest meeting for direction later in the day.

Markets are still waiting for more strongly hawkish signals from the Fed of higher interest rates next year that many expect will eventually drive U.S. bond yields higher and the dollar with them.

The euro drew some support from a relatively downbeat assessment of the pace of U.S. growth from two Federal Reserve officials overnight. But in a day bereft of top tier data there was little for traders to get their teeth into.

"Its really been very quiet," said Daragh Maher, a strategist with HSBC on Monday. "With the minutes today (Fed chair) Janet Yellen was reasonably dismissive after the meeting of any upside threat in inflation, so it will be interesting to see if that mood is the same with others at the Fed."

Against a basket of major currencies, the greenback traded marginally higher at 80.214. It was almost unchanged against the euro at $1.3609.
 

Against the yen, the dollar has fallen all the way back to levels seen before a strong jobs report last Thursday, hurt by a retreat in U.S. Treasury yields from last week's highs. It held steady at 101.69 yen on Wednesday.

"I think the contents of the minutes might turn out to be dollar-positive," said Masafumi Yamamoto, market strategist for Praevidentia Strategy in Tokyo.

"Whichever data you look at, the inflation rate (in the United States) has been rising and I'm not sure that can be dismissed as just noise."

KIWI RISING

The New Zealand dollar was trading just off a three-year high of $0.8819 hit in early trade, steadying after a surge on Tuesday triggered by improvement in the outlook on one of its sovereign credit ratings.

The kiwi has gained around 9 percent since January on the back of a steady rise in domestic interest rates; it is the only developed world economy in which borrowing costs are rising.

"There's reasonable momentum in the kiwi," said HSBC's Maher. "I quite like it against the Australian dollar - the question there is does it have the strength to break through 105 (cents). It may do."

Analysts at French bank BNP Paribas made a similar recommendation in a morning note, preferring the kiwi and Canadian dollars over the Aussie.

"Commodity currencies are performing well despite the backdrop of weaker equity markets," they said.

"The resilience in carry sentiment owes in part to the perception that even as stronger U.S. data may push forward the start of the Fed tightening campaign, the amount of overall rate tightening for the cycle is likely to be more modest than normal.

"We see CAD outperforming the AUD, particularly if the Bank of Canada strikes a less dovish tone at next week’s policy meeting."

(Additional reporting by Ian Chua and Masayuki Kitano; Editing by Catherine Evans)

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