* Dollar index pulls away from 6-1/2 month lows
* Rise in U.S. Treasury yields supports the dollar
* Focus turns to Fed minutes
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, May 24 The dollar on Wednesday held
above 6-1/2-month lows hit in previous days, as comments from a
senior Federal Reserve official rekindled expectations of
possible U.S. interest rate rises.
The dollar had lost nearly all of its gains since the U.S.
elections last November as investor hopes for a fiscal boost
from President Donald Trump were dulled by a scandal over his
firing of former FBI director James Comey.
That, along with a recent sub-par U.S. data has weighed on
the dollar in past weeks. Citi's Economic Surprise Index
for the United States is at its lowest since February
2016, which could mean further unexpected events on the
The dollar index, which measures the greenback against a
basket of peers, hit 96.767 earlier in the week, its lowest
since Nov. 9, but edged lower from Tuesday's close to trade at
"Perhaps given that the FOMC (Federal Open Markets
Committee) was relatively hawkish, saying that the weakness we
had seen in the data was temporary, the market might expect the
minutes to be on the hawkish side," said Athanasios Vamvakidis,
currency strategist at Bank of America in London.
Vamvakidis said the dollar may be supported by Tuesday's
comments from Philadelphia Fed President Patrick Harker, a
voting member of the FOMC, reiterating his support for two more
rate hikes this year. He also said a hike in June was a
Minutes of the Fed's latest policy-setting meeting are set
for publication at 1800 GMT on Wednesday.
The dollar was 0.1 percent higher at 111.85 yen after
a bounce to 112.050 yen, its highest in a week.
It also halted its slide against the euro, which had enjoyed
a bull run this month on factors including an ebb in French
political concerns, upbeat euro zone data, and a widening
German-U.S. government debt yield spread.
The euro was up 0.1 percent at $1.1189, having scaled
a 6-1/2-month high of $1.1268 on Tuesday.
MOODY'S DOWNGRADES CHINA
Moody's Investors Services on Wednesday downgraded China's
long-term local and foreign currency issuer ratings by one notch
to A1 from Aa3, citing expectations that the financial strength
of the world's second-biggest economy would erode in the coming
China's offshore yuan slipped in a knee-jerk reaction but
the overall response was limited. The yuan fell to 6.8902 per
dollar, down by 0.1 percent.
The Australian dollar, sometimes used as a proxy of
China-related trades, eased slightly but reaction to the
downgrade was also relatively subdued. The Aussie was down 0.2
percent at $0.7463.
"Currencies are reacting quite calmly, as China is still
seen to have enough reserve strength for further fiscal
spending," said Masahiro Ichikawa, senior strategist at Sumitomo
Mitsui Asset Management in Tokyo.
Elsewhere, the Canadian dollar stood steady at C$1.3518
per dollar after touching C$1.3457 overnight, its
strongest in a month.
A rise in crude oil prices lifted the Canadian dollar. The
focus is now on the OPEC meeting in Vienna on Thursday to see
whether a deal to prolong output cuts can be struck.
(Reporting by Ritvik Carvalho, additional reporting by Tokyo
markets team; Editing by Raissa Kasolowsky)