FOREX-Dollar holds gains after Fed minutes

By Chuck Mikolajczak

NEW YORK, Dec 30 (Reuters) - The dollar advanced on Tuesday, maintaining gains after the release of minutes from the Federal Reserve's December meeting, as investors attempt to parse 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, however. Still, the greenback is on track for its worst performance since 2017 with a fall of nearly 10%.

According to minutes of the latest two-day session from the Fed at its Dec. 9-10 meeting, the central bank agreed to reduce rates only after a deeply nuanced debate about the risks facing the U.S. economy right now.

New projections issued after the December meeting show the Fed only expects one rate cut next year, while language in the new policy statement indicated the Fed would likely remain on hold for now until new data shows that either inflation is again falling or unemployment is rising more than anticipated.

Markets are currently pricing in about 50 basis points of cuts next year.

"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," said Joseph Trevisani, senior analyst at FX Street in New York.

"If we're looking for movement in the new year in the dollar and the currencies and maybe even interest rates, we're going to have to start looking to the economy and see if that will move things."

The dollar index =USD, which measures the greenback against a basket of currencies, rose 0.19% to 98.19, while the euro EUR= was down 0.18% at $1.1751 on the day - but up more than 13% on the year.

Sterling GBP= weakened 0.3% to $1.3467 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 0.2% against the greenback to 156.39 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 of 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.