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Dlr on defensive before Fed minutes, Tanigaki lifts yen

LONDON - The dollar slipped on Tuesday ahead of the minutes from the Federal Reserve’s last meeting, while the yen rose from record lows versus the euro as Japan’s finance minister said he will watch currency movements closely.

The Fed minutes due at 1800 GMT open a busy week of economic data and comments from policymakers that will help clarify whether the Fed is likely to keep holding rates steady after pausing at 5.25 percent at the Aug. 8 meeting.

“The minutes will be closely scrutinised to see if we get more insight on whether we’re seeing a pause or the end of the (US monetary tightening) cycle,” GNI currency strategist Mark Henry said.

By 1131 GMT, the dollar was down around a quarter percent against the euro at $1.2808. Against the yen, it had lost almost 0.4 percent on the day to trade at 116.78 yen, retreating from last week’s one-month high of around 117.40 yen.

UBS analysts said in a research note that the dollar was set to stay on the defensive.

“While there is some positioning risk for dollar shorts heading into Thursday and Friday’s key data, our bias remains for a downside break in the dollar and we thus continue to target $1.30 for the euro over the next month,” UBS said.

Yen lifted

The yen rose from near record lows against the euro after Japan’s finance minister Sadakazu Tanigaki said he would monitor currency movements closely in the wake of the euro’s rise.

The yen was trading around 149.59 yen against the euro according to Reuters data, having earlier fallen as low as 150.04 -- just one tick away from Monday’s record low of 150.05. It hit a lifetime peak of 150.07 on electronic trading platform EBS on Tuesday.

“The remarks suggest the government is keeping an eye on things and not ignoring them, it sends a message to the market that persistent yen weakness is not something that they are looking for,” said GNI’s Henry.

He added that a struggle with options barriers around 150 had put a natural cap on the market for now.

The yen took a beating after revised consumer price data last week showed a surprisingly sharp slowdown in Japan’s mild inflation that prompted investors to scale back expectations for more Bank of Japan rate increases.

The Swiss franc hit one-week highs against the euro and dollar after Swiss National Bank chairman Jean-Pierre Roth said on Monday the SNB will continue to raise interest rates despite a benign inflation outlook.

Fed rates debate

Some analysts are looking to see whether other Fed officials were leaning toward the view of Richmond Fed President Jeffrey Lacker, who dissented against the decision to pause, favouring another rate increase.

Dallas Fed President Richard Fisher gives a speech at 1700 GMT and is expect to take questions.

US consumer confidence data is due at 1400 GMT, with the index seen slipping to 103.0 in August from 106.5.

However some analysts said that with markets now largely positioned for unchanged Fed rates for some time to come, there could be some scope for the dollar to rebound.

“We see some upside dollar risks from the minutes given the low probability the market is placing on future rate hikes (only 25 percent chance of a move by December) and the risk that the dissent in favour of a hike was more widespread than currently perceived,” JP Morgan said in a note to clients.

“However, any move in dollar is likely to be limited ahead of ISM and payrolls at the end of the week, as well as the ECB meeting.”