The dollar edged close to a seven-month high against a basket of currencies on Thursday after minutes showed US Federal Reserve policymakers had discussed strategies for withdrawing monetary stimulus. The euro fell against the dollar, nearing a nine-month low hit earlier this week, while sterling came under selling pressure after data revealed an unexpectedly sharp deterioration in UK public finances in January.
Analysts said there were concerns that if countries such as Greece implemented the harsh fiscal measures needed to cut their debt this would weigh on eurozone growth and the European Central Bank would be slower in tightening monetary policy. That view pushed down implied eurozone interest rates on Thursday.
"ECB tightening risks being delayed, and yield differentials are playing in favour of a lower euro/dollar," said Tom Levinson, currency strategist at ING. The dollar was supported after Fed minutes on Wednesday revealed several policymakers wanted to begin selling securities relatively soon as the US economy finds its footing, and by strong housing and industrial output data At 1213 GMT, the dollar index was up 0.3 percent at 80.619, a shade below the seven-month high of 80.748 hit late last week.
A weekly close above 80.43, the 200-week moving average, would establish a near-term uptrend for the dollar. Charts show the next target at 81.47, which is the index's June 2009 high, and then 81.90 - a 50 percent retracement of its fall from 89.62 to 74.17 last year.
The euro fell 0.3 percent to $1.3559, just shy of a nine-month low of $1.3532 struck on Friday, with traders citing options expires at $1.3500. "It hasn't been a huge move but the Fed minutes have helped the dollar as they were perceived as hawkish," said Johan Javeus, currency strategist at SEB in Stockholm.
Sterling underperformed, falling 0.5 percent against the dollar to $1.5587 after figures showed public sector net borrowing at 4.339 billion pounds last month, the first January deficit since records began in 1993. "Everyone is very focused on the eurozone fiscal situation at the moment, but the UK is in every bit as bad a shape," said Levinson at ING.
Commodity-related currencies came under pressure after the International Monetary Fund said it planned to sell more gold in the market. The Australian dollar was down 0.3 percent at $0.8970 and the New Zealand dollar down 0.4 percent at $0.7003.
The yen was broadly firmer after the Bank of Japan kept interest rates on hold and held off on new policy initiatives, as expected. The dollar fell 0.6 percent to 90.78 yen while the euro lost 0.8 percent to 123.20 yen, with analysts saying the BoJ disappointed some who had speculated there might be further monetary easing steps.