The dollar gained against the euro for the first time in four days on Wednesday after minutes from the Federal Reserve's January policy meeting showed the U.S. central bank's plan to reduce its monthly asset purchases was intact.
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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.
The dollar, which hit a seven-week low against the euro earlier on Wednesday, rebounded after the release of the minutes at 2:00 p.m. EST (1900 GMT). The Fed opted to trim asset buying by another $10 billion per month at its January meeting.
"The minutes suggest that the Fed wants to finish with QE(quantitative easing) unless the data point to the economy moving into a soft patch that is not weather-induced," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.
The dollar last traded up against the euro, which fell 0.2 percent to $1.3731. The euro had earlier risen as high as $1.3773, its strongest level since Jan. 2.
Traders viewed the Fed minutes as a continuation of new Fed Chair Janet Yellen's testimony before the U.S. House of Representatives Financial Services Committee on Feb. 11, Krosby said.
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Yellen had emphasized continuity in the U.S. central bank's monetary policy in the testimony, saying the Fed was on track to keep reducing its stimulus.
Traders have feared that weak U.S. economic data could prevent the Fed from reducing its monthly asset purchases at a pace of $10 billion at each policy meeting.
A pause in the Fed's cuts to its monthly bond buying would be negative for the dollar since it would keep U.S. bond yields low, leading investors to seek higher yields elsewhere.
The weak U.S. data continued on Wednesday, triggering early losses for the dollar. Commerce Department data showed U.S. housing starts recorded their biggest drop in almost three years in January.
The data heightened fears surrounding the U.S. economy after New York manufacturing and U.S. housing data on Tuesday disappointed investors, which had increased pressure on the dollar.
Before the release of the Fed minutes, the dollar index had fallen as low as 79.927 against a basket of major currencies, its lowest this year. It rebounded and was last up 0.24 percent at 80.2 late on Wednesday.
DOLLAR DOWN AGAINST YEN
The dollar briefly gained against the yen after the Fed minutes before falling again, and last traded flat at 102.300 yen.
Benchmark U.S. interest rates have remained lower than many investors had anticipated and have kept the dollar weak, said Douglas Borthwick, managing director at Chapdelaine Foreign Exchange in New York.
"Anyone that had bought the dollar expecting the rate rise has now had to sell," Borthwick said.
The benchmark 10-year U.S. Treasury note last traded down 7/32 in price to yield 2.73 percent, erasing earlier price gains. That yield is still lower than in late December, when it hit a near 2-1/2-year high of 3.04 percent. Bond yields move inversely to their prices.
"Until you see higher U.S. yields, you're going to continue to see the dollar weaken against the yen," said Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management in New York.
Despite the minutes of the Federal Open Market Committee meeting easing some fears that the Fed might slow the cuts to its stimulus program, continued weak economic data could still push the Fed in that direction.
A pause in the Fed's reduction to its asset purchases remains "on the table" if weak economic data persist, said Borthwick of Chapdelaine, contributing to the dollar's weakness against the yen.
(By Sam Forgione)