NEW YORK (Reuters) - The dollar gained on Wednesday, pushing the euro to a fresh two-year low after minutes of last month's Federal Reserve meeting showed additional asset-buying by the Fed was not imminent and likely to occur only if U.S. economic conditions worsened.
The report showed a few officials on the policy-setting Federal Open Market Committee believed further stimulus to the economy was justified, but a majority was not yet convinced.
"On balance, the minutes do not on the surface suggest a sizable body of support for further immediate action, although it should be borne in mind that the comments were made prior to recent data disappointments," said Peter Buchanan, economist at CIBC World Markets in Toronto.
"We doubt that the statement contains enough meat on the easing side to satisfy observers who were hoping for more signs of a willingness to launch another round of unsterilized quantitative easing on any signs of deterioration in the growth picture."
The euro hit a two-year low of $1.2211 after the minutes, but was last at $1.2237, down 0.1 percent. The next target on the downside is $1.20, and after that, a possible test of the June 2010 trough of $1.1875.
The single currency has fallen about 5.5 percent so far this year, exceeding losses racked up in 2011, when it fell more than 3 percent. Yet many analysts feel it is not time to buy the euro.
"Our instincts still tell us that investors will continue to sell into euro rallies for now," said Valentin Marinov, senior currency strategist at Citigroup in London.
"Euro pessimism seems deeply entrenched and one could argue that even if market risk sentiment improves from here, selling euro on the crosses could continue."
The dollar index was up 0.1 percent .DXY at 83.450, aided by the greenback's gains versus the yen.
The euro also fell against most major currencies on unease over how policymakers will tackle the debt crisis after it appeared there would be no quick judgment from a German court on the euro zone's bailout fund.
The single currency also dropped to a three-and-a-half-year trough against sterling and a record low versus the higher-yielding Australian dollar.
Alongside doubts fed by the euro zone debt crisis, the currency remained under pressure after the European Central Bank's decision to cut interest rates last week brought the deposit rate to zero.
Analysts said any renewed rise in Spanish and Italian government debt yields could push the euro down further as concerns about political hurdles and skepticism over the euro zone's decision-making process grow.
The ECB's rate cut removed a pillar of support for the euro, raising chances it could become a funding currency of choice for buying higher-yielding assets.
The euro fell to its weakest against sterling since late 2008 at 78.68 pence, while it hit an all-time low against the Australian dollar at A$1.1937.
Some market players had been hoping for a quick ruling from Germany's Constitutional Court on whether the European Stability Mechanism and planned changes to the euro zone's budget rules were compatible with German law.
But the decision looks likely to take several weeks, with Finance Minister Wolfgang Schaueble saying he hoped a judgment would be passed before the fall.
There were also concerns about Italy, whose Prime Minister Mario Monti said on Tuesday the country could be interested in tapping the euro zone's rescue fund to ease its borrowing costs.
The euro fell to a five-week low against the yen but recovered to trade 0.3 percent higher at 97.54 yen.
The dollar was up 0.3 percent against the yen at 79.64 yen, holding well above chart support at its 200-day simple moving average at 78.98, as investors positioned ahead of the outcome from the Bank of Japan's two-day policy meeting that started on Wednesday.
The BoJ is expected to hold off on easing monetary policy despite moves in that direction last week by central banks in the euro zone, Britain and China.