Dollar slips after solid gains, investors await Fed minutes

[November 18, 2015]  By Anirban Nag

LONDON (Reuters) - The dollar slipped from a seven-month high against a basket of currencies on Wednesday as markets awaited minutes of the Federal Reserve's recent policy meeting which could reinforce expectations of a rate hike next month.

But with the Fed likely to flag concerns about the currency's recent strength, there were signs of wariness building in the long dollar trade.

"It will be a case of range-trading going into the Fed minutes. We could see some positions being pared, with the dollar having risen in the past few weeks," said Jeremy Stretch, head of currency strategy at CIBC World Markets.

"The market is also mindful that the Fed may refer to the dollar's strength either implicitly or obliquely and that its rise has been tightening monetary conditions. That should make any hikes a rather slow and gradual process."

The dollar index  has risen 6.3 percent in the past month as market odds for an interest rate hike in December moved from around 30 percent to 66 percent. The Fed's broad-based dollar trade-weighted index has also pushed higher.

The index was 0.1 percent lower at 99.535 after touching 99.745 on Tuesday, its highest since mid April. The dollar was also slightly lower against the safe-haven yen and the Swiss franc.

The dollar's dip saw the euro regain ground despite what traders described as caution in early trading as French police hunted a Belgian militant suspected of masterminding last week's attacks on Paris.

The single currency rose to $1.0673, having dropped to a seven-month low of $1.0630 on Tuesday. The euro has been losing ground on expectations the European Central Bank will ease monetary policy further in December, with many forecasters predicting it will reach parity with the dollar.

Pascal Blanque, chief investment officer at Amundi Asset Management told the Reuters Investment Summit that the bulk of the directional impact from quantitative easing by major central banks on exchange rates was "behind us".

"To an extent, I think it has become more uncertain compared to let's say two years ago," he said.

Comments on Tuesday by ECB chief economist and executive board member Peter Praet, who told Bloomberg downside risks may have increased in light of the events in Paris, reinforced expectations of further stimulus.

The euro lurched lower after Paris attacks as investors fretted about their potential impact on the euro zone economy.

(Editing by Catherine Evans)

[© 2015 Thomson Reuters. All rights reserved.]

Copyright 2015 Reuters. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.