February 23, 2017 / 10:27 AM / 10 months ago

FOREX-Eyes on France as dollar drifts

* Dollar drifts in tight range against yen, euro

* Aussie slips after weaker-than-expected Q4 capex data

* Eyes still on French politics as poll shows Le Pen gains

* Graphic: World FX rates in 2016 tmsnrt.rs/2egbfVh

By Patrick Graham

LONDON, Feb 23 (Reuters) - The dollar traded close to one-month highs on Thursday, as the lack of a clearer signal from the U.S. Federal Reserve that it might raise interest rates next month countered surprise praise from the new Treasury Secretary for a strong currency.

It traded in tight ranges against the yen and the euro, moving back above $1.05 against the single currency after a pledge of support for centrist candidate Emmanuel Macron from one rival soothed investor nerves about how France’s presidential election might pan out.

The political nerves that have affected trade in the single currency were still in evidence, driving 2-month implied volatility of the currency to the highest in a month as contracts took in the first round of the election in April.

But the 3-month equivalent was down slightly from post-Brexit vote highs hit on Wednesday, bolstering spot prices for the euro.

A poll showing French far right leader Marine Le Pen was only 10 points behind conservative Francois Fillon but 22 points behind Macron in the potential second-round run-offs was not enough to knock the single currency backwards.

“What we have seen later yesterday and this morning is some euro strength,” said Karl Steiner, a strategist with SEB in Stockholm.

“It will be interesting to see if the euro continues to be dominated by French politics. That has certainly been the case in the last few days.”

By 0900 GMT, the euro was steady on the day at $1.0556 , up half a cent on lows hit in the European morning on Wednesday.

The dollar index, which measures its broader strength against a basket of other currencies, was marginally higher on the day at 101.32. That compared to a one-month high of 101.76 hit last week.

The big set piece overnight was the Fed’s minutes, which while not as hawkish as some in the market had hoped, just about kept a March interest rate hike in play.

The Fed rarely delivers interest rate moves that are not largely priced in by money markets and Fed funds futures show the chances of a rise next month are still only around 20-25 percent. Any move in those expectations can be expected to push the dollar higher after a listless few weeks.

New U.S. finance chief Steven Mnuchin told the Wall Street Journal that the strong dollar was “a good thing” in the long run, in contrast to a number of comments by officials in President Donald Trump’s administration that have weighed on the currency in the past month.

That gave the greenback a boost before caution quickly set in.

“We have to remember Mnuchin was referring to the dollar’s long-term prospects, and that he did suggest before that too strong of a dollar could have negative effects in the short-term,” said Masashi Murata, senior currency strategist at Brown Brothers Harriman in Tokyo.

The dollar was down 0.2 percent at 113.10 yen in morning trade in Europe.

The Aussie dollar, another mover overnight after some poor capital expenditure numbers, was also down 0.2 percent at $0.7690 having earlier fallen almost half a percent.

For Reuters Live Markets blog on European and UK stock markets see reuters://realtime/verb=Open/url=http://emea1.apps.cp.extranet.thomsonreuters.biz/cms/?pageId=livemarkets (Additional reporting by Shinichi Saoshiro in Tokyo; editing by John Stonestreet)

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