Dollar drifts higher as investors await Fed minutes

New York (Oct 8)  The dollar inched higher against most major currencies on Wednesday, after losses in the previous sessions, as traders consolidated positions ahead of the release of minutes from the Federal Reserve's most recent policy meeting.

The minutes from the U.S. central bank's rate-setting Federal Open Market Committee (FOMC) are due at 2:00 p.m. EDT (1800 GMT) and investors will be looking for indications of how soon the Fed plans to raise interest rates.

The greenback rose versus the yen after dropping 1.6 percent over two days, the worst two-day loss in eight months.

Dovish comments from Fed speakers on Tuesday have made the upcoming minutes all the more crucial for market participants keen for clues on the direction of future monetary policy.

Minneapolis Federal Reserve Bank President Narayana Kocheralakota said on Tuesday low inflation should compel the Fed to withhold from raising interest rates for now, despite a fall in U.S. unemployment.

New York Federal Reserve President William Dudley, meanwhile, said he was less confident that labor market participation would rebound, adding that a stronger dollar could further dampen inflationary pressures.

In early New York trading, the dollar was up 0.1 percent against the yen at 108.13, after hitting a three-week low on Tuesday.

The dollar was slightly up against the Swiss franc at 0.9576 franc, and was flat against a basket of major currencies at 85.67, having hit a four-year high of 86.765 last week.

With the Fed due to complete winding down its $4 trillion bond-buying program this month, and the International Monetary Fund having cut its global economic growth forecasts for the third time this year, a mood of risk aversion permeated markets.

Euro gloom

The euro was flat on the day against the dollar at $1.2667. The single currency has fallen almost 10 percent against the dollar over the past five months as the outlooks for growth and monetary policy in the euro zone and United States have become increasingly divergent.

It earlier hit a one-month low against the yen at 136.50 yen in Asian trading on deepening worries about euro zone growth prospects and the looming threat of deflation.

Earlier, Spain posted its weakest industrial output growth for almost a year. That came a day after corresponding data from Germany showed industrial output in the euro zone's biggest economy fell by 4 percent in August - the biggest drop since the height of the financial crisis.

Source: Reuters