FOREX-Dollar falls on Fed view, euro up before German ZEW

London (Nov 19)  The dollar index fell for a third successive day on Tuesday as investors trimmed long positions, after a Federal Reserve official said easy monetary policy was likely to be in place for some time to come.

The dollar's weakness helped pushed the euro higher, although gains were limited before a German ZEW economic sentiment survey, due at 1000 GMT. Investors are expecting an improved reading to support the euro, while a lower-than-expected number could see it give up recent gains.

The dollar has been under pressure since remarks last week by Janet Yellen, the Federal Reserve's chief in waiting, widely interpreted as confirming her dovish stance.

Investors took their cue from the comments by Federal Reserve Bank of New York President William Dudley. He said he was "more hopeful" about the U.S. economy but also that he expected "very accommodative" monetary policy to be in place "for a considerable period of time".

"Fed tapering still remains the market's main obsession," said Jane Foley, senior currency strategist at Rabobank.

"What we've had with QE (quantitative easing) is a recognition that it could be some time before the Fed moves away from stimulus."

Since Yellen's remarks at her Senate confirmation hearing U.S. Treasury yields have fallen, dragging the dollar index, which is correlated to bond yields, lower. The index was down 0.2 percent at 80.68, having hit a low of 80.565 on Monday. A break above Monday's high of 80.923 is needed to halt its downtrend in the past week.

Traders said the dollar was also hurt by talk that China's central bank may widen its yuan trading band, which could lead to further gains in the Chinese currency versus the dollar.

Against the euro it was down 0.1 percent at $1.3515, while the dollar was 0.2 percent lower at 99.81 yen.

Investors were looking ahead to the release on Wednesday of minutes from the Fed's October meeting for clues to how long it will maintain its monthly $85 billion of bond purchases.

"To assess where the consensus is at the Fed, the Fed's policy minutes tomorrow will be important," said Shinichiro Kadota, chief FX strategist at Barclays.

The euro was down 0.1 percent against the yen at 134.93 before the ZEW survey, which is expected to improve to a reading of 54, despite recent signs of weakness in the euro zone economy.