LONDON: The dollar hit a one-week high against a basket of currencies on Wednesday, lifted by minutes from the US Federal Reserve's latest policy meeting that reduced expectations for further monetary stimulus and sent Treasury yields higher. Analysts said the greenback was likely to hold firm versus the euro as market players wait for the results of a Spanish bond auction and a European Central Bank meeting, at which policymakers are widely expected to keep rates on hold. The US currency also rallied against the Australian dollar, which dropped to an 11-week low of US$1.0263 after Australia posted a surprise trade deficit, fuelling expectations its central bank would cut interest rates in May. The dollar index was steady on the day at 79.524, close to a one-week peak of 79.597 hit during Asian trading. "The market is moving on reduced probability of further QE in the near-term, and that's helping to support the US dollar across the board," said Lee Hardman, currency economist at Bank of Tokyo-Mitsubishi. "The euro is likely to adjust lower on the back of the euro zone economy underperforming, which will require the ECB to run a loose policy stance. There could potentially be a slightly more dovish stance from the ECB today, and that contrast with the Fed will provide euro/dollar with some downward momentum." Minutes published on Tuesday showed only two of the policy-setting Federal Open Market Committee's 10 voting members saw the case for additional monetary stimulus. The statement sparked a sell-off in US Treasuries, with the 10-year yield last trading at 2.26 percent. Analysts said high inflation in the euro zone would prevent the ECB from easing monetary policy further, but market players also expect ECB President Mario Draghi to sound cautious about the outlook for the region's economy. Concerns about Spain's fiscal situation meant borrowing costs could climb sharply at the auction on Wednesday, with a rise in yields likely to weigh on the euro. Neighbouring Portugal offers 18-month Treasury bills for the first time since March 2011, a month before it received a bailout from the European Union and International Monetary Fund. The euro fell 0.3 percent to $1.3199, with support seen around its 100-day moving average at $1.3155. Bank of Tokyo's Hardman said the euro may test that level but was unlikely to break below the bottom end of its recent trading range roughly between $1.30 and $1.35 in the near-term. AUSSIE TUMBLES The Australian dollar, which had been under pressure after the Reserve Bank of Australia on Tuesday opened the door for a rate cut next month, fell to its lowest level since mid-January following the trade deficit figures.

Source