FOREX-Dollar strengthens before Fed minutes

By Chuck Mikolajczak

NEW YORK, Dec 30 (Reuters) - The dollar advanced on Tuesday ahead of the release of minutes from the Federal Reserve's December meeting, as investors attempt to gauge the path of monetary policy.

Year-end holidays have kept trading volume light, and analysts cautioned not to put too much weight on market moves over recent days. The greenback, however, is on track for its worst performance since 2017 with a fall of nearly 10%.

Later on Tuesday at 2 p.m. EST, the minutes from the Federal Open Market Committee's meeting earlier this month will be released, in which the U.S. central bank cut rates and projected just one more reduction for next year, although markets have priced in roughly two more.

The minutes may provide fresh insight on disagreements among policymakers that drew three dissents - one for a bigger half-point cut and two who felt no cut was necessary.

"There's actually some interest in this because getting three dissents with one and two on either side is a bit unusual for the Fed," said Joseph Trevisani, senior analyst at FX Street in New York.

"We don't have any direction in Fed policy and so you're seeing that reflected in the dollar and the currency rates. You're seeing it reflected in the interest rates as well in the Treasury rates, so the market doesn't have a lot to work with right here."

The dollar index =USD, which measures the greenback against a basket of currencies, rose 0.13% to 98.13, while the euro EUR= was down 0.08% at $1.1762 on the day - but up more than 13% on the year.

Sterling GBP= weakened 0.27% to $1.3472 but is up nearly 8% against the dollar for 2025.

The dollar index =USD, which measures the U.S. currency against rivals, is down 9.5% on the year, its steepest decline in eight years as Fed rate-cut bets, shrinking interest rate differentials against other currencies and concerns about fiscal deficits and political uncertainty have all weighed on the greenback.

While the economic calendar is light in most markets ahead of the New Year holiday, data earlier on Tuesday showed U.S. home prices rose in October at the slowest annual rate in more than 13 years, according to the Federal Housing Finance Agency.

It was a potential sign of improving affordability in the long-struggling housing market.

The yen JPY= weakened 0.14% against the greenback to 156.3 per dollar, although the Japanese currency has strengthened in recent days to move away from levels that drew statements from officials in Tokyo last week and increased market expectations about a possible intervention by the Bank of Japan.

YUAN BREACHES KEY LEVEL

China's onshore yuan pierced the psychological level of seven to the dollar for the first time in 2-1/2 years, defying weaker central bank guidance, as exporters rushed to sell dollars at year-end.

The yuan hit 6.987 per dollar CNY=CFXS, its strongest since May 2023. It has gained 4% against a weaker dollar since early April when U.S. President Donald Trump announced sweeping tariffs, and is set to snap a three-year streak of declines.

China's central bank has sought to prevent the yuan from overshooting through weaker guidance rates and verbal warnings in state media, but has failed to reverse the yuan's strengthening trend.