By Shinichi Saoshiro
TOKYO (Reuters) - The dollar was on the defensive on Thursday after the Federal Reserve dialled down on some of the more hawkish policy expectations in the market, while the euro edged back up towards a 6-1/2-month high.
Fed policymakers agreed they should hold off on raising interest rates until they see evidence that a recent economic slowdown was transitory, the minutes from their last policy meeting showed on Wednesday.
The minutes were seen to indicate heightened Fed caution towards interest rate hikes and took the wind out of an earlier bounce by the dollar, which had been plagued recently by U.S. political concerns centred on President Donald Trump.
The dollar index against a basket of major currencies. was down 0.3 percent at 96.972.
The U.S. currency was pressured by lower Treasury yields, which fell on the Fed's signal of a gradual approach to raising rates.
"The way Treasuries reacted to the Fed minutes shows that market participants do not consider a rate hike in June a done deal," said Makoto Noji, senior strategist at SMBC Nikko Securities.
The dollar was little changed at 111.635 yen, pushed away from a one-week high of 112.130 scaled the previous day.
The euro, which went as low as $1.1168 overnight, was 0.2 percent higher at $1.1240, making its way back towards the 6-1/2-month peak of $1.1268 touched on Tuesday.
The common currency has enjoyed a bull run this month on factors including an ebb in French political concerns and upbeat euro zone data.
"The euro is resuming its advance with the dollar sagging on the Fed's minutes. It has the momentum to surpass the $1.1300 mark and we could see the rise continue towards $1.1500," said Daisuke Karakama, market economist at Mizuho Bank.
"That said, the market is low on incentives after the Fed minutes' release. We have to wait until the U.S. non-farm payrolls report for the next big event, with dealers keeping an eye on any irregular Trump-related news headlines in the meantime."
The Canadian dollar stood near a one-month high against the greenback after the Bank of Canada gave a more upbeat assessment of the economy than some investors expected.
The central bank held interest rates steady on Wednesday as anticipated, but noted strong spending by Canadians along with a housing boom and job growth.
The Canadian dollar was at C$1.3405 per dollar after touching C$1.3402, its strongest since April 19.
Stronger crude oil prices, which have bounced sharply from multi-month lows seen earlier in the month amid hopes that an OPEC-led production cut would be extended, have also supported the loonie this week.
Other oil-linked currencies also gained.
The Norwegian crown stood at 9.349 per euro for a gain of about 0.3 percent on the week. The currency has managed to put some distance between a nine-month low of 9.577 plumbed three weeks ago when oil prices fell to lowest levels since November.
The Australian dollar was 0.1 percent higher at $0.7510. The Aussie fell to $0.7443 on Wednesday after rating agency Moody's downgraded China, but it managed to bounce back as the dollar sagged broadly.
The Australian dollar is often used as a liquid proxy for China-related trades.
(Reporting by Shinichi Saoshiro; Editing by Eric Meijer & Shri Navaratnam)
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