US dollar edges lower on Fed minutes, French politics

[NEW YORK] The US dollar fell against the euro and yen on Wednesday after Federal Reserve meeting minutes disappointed expectations for a hawkish tone and anti-EU French presidential candidate Marine Le Pen's perceived chances of winning fell.

The minutes of the Fed's Jan 31-Feb 1 discussion, at which the US central bank voted to keep rates unchanged, showed many Fed policymakers said it may be appropriate to raise interest rates again "fairly soon" should jobs and inflation data come in line with expectations.

The minutes also showed, however, that among voting members there was much less urgency to raise rates with many seeing only a "modest risk" that inflation would increase significantly and that the Fed would "likely have ample time" to respond if price pressures emerged.

The minutes came after Fed Chair Janet Yellen said last week that waiting too long to raise rates again would be "unwise" and gave a strong indication that the central bank remains on track to consider raising rates again by the summer.

"The message was that there is still some hesitation, some caution versus the impression the markets got from the Yellen testimony last week," said Sireen Harajli, FX strategist at Mizuho in New York.

French politics also weighed on the greenback and lifted the euro from a six-week trough of US$1.0494 touched earlier to a session high of US$1.0572, or as much as 0.4 per cent higher on the day.

Veteran French centrist Francois Bayrou said Wednesday he was offering an alliance with independent candidate Emmanuel Macron, a move that could give the former investment banker a much-needed boost to reach the runoff in May's presidential election.

"Any possibility that Le Pen may not become the next president of France has been perceived as good for the currency, and that's the reason why we saw a reversal," said Kathy Lien, managing director at BK Asset Management in New York.

The US dollar was last down 0.5 per cent against the safe-haven yen at 113.13 yen after slipping as much as 0.7 per cent to a session low of 112.91 yen in morning US trading.

The US dollar index, which measures the greenback against a basket of six major rivals, was last down about 0.2 per cent at 101.220 after hitting a one-week high of 101.720 in early trading.

REUTERS