By Gertrude Chavez-Dreyfuss
NEW YORK (Reuters) - The dollar weakened across the board on Thursday after rising for four straight sessions, as investors cashed in recent gains driven by widespread expectations of a U.S. Federal Reserve interest rate increase next month.
The minutes of the latest Federal Reserve meeting released on Wednesday reinforced the rate hike view, providing broad, long-term support for the dollar.
However, the minutes also pointed to a debate among Fed policymakers about the U.S. economic outlook, which may have affected sentiment about an impending rate hike in December, some analysts said. That could also partly explain why the dollar weakened despite a generally upbeat view on the U.S. economy, they added.
"The release of the FOMC (Federal Open Market Committee) minutes provided few surprises to market participants: policymakers have become more optimistic on the U.S. economy, as a rate hike in December now looks nearly certain," said Christopher Vecchio, currency analyst at FXCM-owned DailyFX.
"This retracement in the dollar appears to be of the profit-taking variety, not the early stages of a major reversal."
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In late trading, the dollar fell 0.7 percent against the yen to 122.82. The yen strengthened after the Bank of Japan kept policy steady.
The dollar index was down 0.7 percent at 98.953. On Wednesday, the index hit a seven-month peak.
Losses in the dollar index were mainly driven by the greenback's fall against the euro. The euro on Thursday rose 0.7 percent to $1.0733 .
Meanwhile, the New Zealand and Australian dollars were the biggest gainers against the U.S. currency, both rising more than 1 percent.
"Markets for a while now have discussed ad nauseam the spectre of U.S. borrowing rates rising as soon as next month that the topic doesn't seem to be packing as much punch for the dollar," said Joe Manimbo, senior market analyst, at Western Union Business Solutions in Washington.
"A rate hike is virtually priced into the dollar that markets appear to be looking beyond December to the road ahead in 2016 for Fed policy."
The fed funds futures curve is pricing in two rate hikes with a minimal chance of a third throughout 2016.
Data showing a fall in U.S. initial jobless claims last week and a slight pick-up in factory activity also supported a rate hike in December.
(Reporting by Gertrude Chavez-Dreyfuss, additional reporting by Patrick Graham in London; Editing by G Crosse and Meredith Mazzilli)