US dollar index flat as Fed minutes hint tensions on inflation

[NEW YORK] The US dollar was little changed on Wednesday against a basket of currencies as the Federal Reserve's minutes on its June 13-14 policy meeting showed a rift among policy-makers over the pace of future US rate increases with signs of inflation softening.

The yen rose briefly on safe-haven demand after North Korea said it conducted a test of a new intercontinental ballistic missile (ICBM) that can carry a large nuclear warhead.

The Canadian dollar and other commodity-sensitive currencies pared losses following the Fed minutes. Earlier, they were down with tumbling oil prices.

The June minutes showed several Fed officials expressed concerns about the downshift in inflation data even as most agreed to raised rates by a quarter point last month.

"The Fed can tighten further, but not too much further from here," said Adnan Akant, head of currencies at BNP Asset Management in New York.

US inflation and growth remained sluggish, which would limit rate increases, Akant said.

Sliding energy costs have helped prevent inflation from reaching Fed's 2 per cent goal, and also stoked bets for the dollar to fall.

Bearish bets on the greenback increased in late June as the European Central Bank and Bank of England hinted they might consider scaling back monetary stimulus later this year.

The US dollar index was flat at 96.237 after touching a one-week high. In the second quarter, this gauge tracking the greenback against six currencies fell 4.71 per cent, its biggest quarterly drop since the third quarter of 2010.

The euro was little changed at US$1.1348, below its highest levels in over a year reached last week.

The greenback was at 113.14 yen, down 0.1 per cent. Early in the session it hit a seven-week high at 113.68 yen. In overnight trade, the US dollar had slipped below 113 yen in the wake of Pyongyang's announcement on its latest missile launch.

US financial markets were closed on Tuesday for the July Fourth holiday.

Oil prices slid nearly 4 per cent, hitting commodity-sensitive currencies before the Fed minutes.

The Canadian dollar fell 0.2 per cent to C$1.2966 per US dollar after hitting C$1.2912 on Tuesday, its strongest against the greenback since Sept 9.

REUTERS