Dollar pares gains as some Fed officials show caution on growth



* Graphic: World FX rates Link

By Karen Brettell

NEW YORK, Aug 17 (Reuters) - The U.S. dollar pared its gains on Wednesday after minutes from the Federal Reserve's July meeting showed that Fed officials are concerned the U.S. central bank could raise rates too far as part of its commitment to get inflation under control.

In a glimpse of the emerging debate at the central bank, "many" participants noted a risk that the Fed "could tighten the stance of policy by more than necessary to restore price stability," a fact that they said made sensitivity to incoming data all the more important, the minutes showed.

"Some participants at the Fed were noting that interest rate sensitive sectors had begun to show signs of slowing and that there was in the eyes of some participants a risk of overtightening," said Brian Daingerfield, head of G10 FX strategy at NatWest Markets in Stamford, Connecticut.

It comes after Fed Chairman Jerome Powell said at the July meeting that the impact of Fed rate increases to date is still building in the economy, and depending on how inflation responds in coming months that could allow the central bank to begin to slow the pace of rate increases.

"That combination I think is giving the minutes a little bit of a dovish feel relative to what we’ve heard from FOMC officials in the aftermath of the meeting,” said Daingerfield.

The dollar index =USD fell to 106.39 after the meeting minutes were released, before rebounding back to 106.55, up 0.09% on the day.

The size of the Fed’s next expected rate hike is expected to depend on consumer price inflation and jobs data for August, which will be released before its September meeting.

The odds of a 75 basis-point hike in September dropped to 40% after the meeting minutes, from 52% earlier on Wednesday, with a 50 basis-point hike now seen as a 60% probability. FEDWATCH

Looser financial conditions as benchmark 10-year Treasury yields hold below 3% and as the credit and stock markets improve has also increased speculation the Fed may need to be more aggressive in hiking rates to make an impact.

Retail sales data on Wednesday were solid, helping to reduce concerns about an economic slowdown.

"Everyone is focused on - well, will we really see the Fed be in a position where they need to deliver more massive rate hikes and can the economy handle it, and right now the economy looks like it can," said Edward Moya, senior market analyst at OANDA in New York.

The euro EUR=EBS gained 0.13% on the day against the dollar to $1.0185. The greenback gained 0.55% against the yen to 134.97. JPY=D3

The Australian dollar AUD=D3 fell 1.23% as concerns about Chinese demand for commodities including iron ore dented the appeal of the currency.

The New Zealand dollar NZD=D3 also dropped 0.98%, erasing earlier gains in volatile trading on what was likely profit-taking on the original move.

New Zealand's central bank on Wednesday delivered its seventh straight interest rate hike and signaled a more hawkish tightening path over coming months to rein in stubbornly high inflation, which briefly boosted the currency.

Sterling also faded after an initial jump on data showing that consumer price inflation in Britain rose to 10.1% in July, the highest level in 40 years.

The British pound GBP=D3 was last down 0.34% on the day at $1.2059.

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Currency bid prices at 3:15PM (1915 GMT) Description

RIC

Last

U.S. Close Pct Change

YTD Pct

High Bid

Low Bid

Previous

Change

Session

Dollar index

=USD

106.5500

106.4800

+0.09%

11.381%

+106.8900 +106.3000 Euro/Dollar

EUR=EBS

$1.0185

$1.0172

+0.13%

-10.41%

+$1.0202

+$1.0146 Dollar/Yen

JPY=EBS

134.9650

134.2550

+0.55%

+17.27%

+135.4950 +133.9100 Euro/Yen

EURJPY=

137.46

136.50

+0.70%

+5.48%

+137.8700 +136.2700 Dollar/Swiss

CHF=EBS

0.9514

0.9497

+0.19%

+4.31%

+0.9543

+0.9485 Sterling/Dollar GBP=D3

$1.2059

$1.2098

-0.34%

-10.85%

+$1.2143

+$1.2028 Dollar/Canadian CAD=D3

1.2907

1.2846

+0.49%

+2.09%

+1.2936

+1.2828 Aussie/Dollar

AUD=D3

$0.6939

$0.7024

-1.23%

-4.57%

+$0.7026

+$0.6912 Euro/Swiss

EURCHF=

0.9691

0.9656

+0.36%

-6.54%

+0.9700

+0.9652 Euro/Sterling

EURGBP=

0.8444

0.8408

+0.43%

+0.52%

+0.8450

+0.8390 NZ

NZD=D3

$0.6283

$0.6343

-0.98%

-8.23%

+$0.6383

+$0.6260 Dollar/Dollar

Dollar/Norway

NOK=D3

9.6945

9.6770

+0.17%

+10.03%

+9.7470

+9.6625 Euro/Norway

EURNOK=

9.8798

9.8293

+0.51%

-1.33%

+9.9070

+9.8215 Dollar/Sweden

SEK=

10.3824

10.3332

+0.61%

+15.13%

+10.4139

+10.3154 Euro/Sweden

EURSEK=

10.5759

10.5117

+0.61%

+3.34%

+10.5914

+10.5050
Additional reporting by Iain Withers in London Editing by Mark Potter

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