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 The Japanese yen gained almost half a percent after the Bank of
Japan kept policy steady. The New Zealand and Australian dollars
both rose almost 1 percent and the euro around half a percent to
push back above $1.07.
U.S. bond markets reacted to signals in Wednesday's Federal Reserve
minutes that a U.S. rate rise in December may now be "appropriate",
sending U.S. short-term interest rates higher. But the dollar
stalled again above $1.06 against the euro, with some players citing
profit-taking by some bigger funds.
"That the dollar is lower signals that this outcome (of the December
meeting) is increasingly discounted, particularly in the wake of
recent, very heavy USD buying," said Citi's Asian head of G10 FX
strategy, Todd Elmer.
"It likewise means that for the USD to head higher still, some
signal on the trajectory of rates beyond the first hike may be
needed."
The dollar index was down 0.5 percent at 99.139. It hit a high
of 99.853 overnight, closing in on the 12-year peak of 100.39 set in
March.
There are still plenty of dollar bulls out there.
"We think only about 60 percent of the Fed hike is priced in, so
there is clearly scope for the dollar to go higher if that pricing
moves to 80-90 percent," Barclays strategist Nick Sgouropoulos said.
"You could see this morning that people are selling the rally in
euro-dollar."
The Fed funds futures curve is pricing in two hikes with a minimal
chance of a third throughout 2016. Barclays, which sees the euro at
$1.03 by the end of this year, expects four. The euro gained a
quarter of a percent to $1.0682 by 0420 ET.
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Fed officials also backed expectations of a rate rise, with Fed
President Dennis Lockhart, New York Fed President William Dudley and
Cleveland Fed President Loretta Mester all expressing confidence
that the policy tightening, when it comes, will be implemented
smoothly for markets.
"Its a broad dollar move today. The dollar has come under some
pressure, allowing the other G10 currencies to gain back some
ground," said Ian Stannard, head of European FX strategy at Morgan
Stanley in London.
"The consensus positioning has been long dollars, short most of the
other G10 currencies, with the possible exception of the yen. So it
wouldn't surprise if we had a more cautious approach going into the
year-end and the Fed meeting."
(Editing by Larry King)
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