Dollar dips ahead of Janet Yellen speech on interest rates

NEW YORK (AFP) - The dollar fell on Thursday, a day after scoring sharp gains, as investors braced for a speech from Federal Reserve chief Janet Yellen that could signal the direction of interest rates.

A flurry of stronger-than-expected US economic data - including jobless claims and used-home sales - was not enough to extend Wednesday's big rally that had pushed the greenback to its highest level against the euro in 11 months.

The dollar had surged after the Federal Reserve's minutes of its last monetary policy meeting revealed an intensifying debate about raising the key federal funds rate, held in a range of zero to 0.25 per cent since December 2008.

The euro gained ground on Thursday despite a downbeat reading on eurozone business activity. Markit's purchasing managers index came in below expectations and suggested only sluggish economic growth in the 18-nation currency bloc.

All eyes were focused on Friday's speeches by the heads of the US and eurozone central banks at the Fed's annual monetary policy meeting in Jackson Hole, Wyoming.

Fed Chair Janet Yellen is schedule to speak first, at 1400 GMT (10 pm Singapore time), followed by Mario Draghi, the European Central Bank president, at 1830 GMT (2 am Singapore time).

"While we have a pretty good idea of what Draghi will say, the latest FOMC minutes has investors eager to see if Yellen adopts a less dovish stance," said Kathy Lien of BK Asset Management.

Lien said profit taking had weighed on the greenback.

"Investors are worried that Yellen could maintain her dovish stance and downplay the Fed minutes, which raised the possibility of a change in their view on labor market underutilization and the likelihood of an earlier rate rise."