By Sara Sjolin, MarketWatch

Euro climbs after signs of a pickup in inflation

The U.S. dollar pulled back from a 14-year high on Wednesday as investors awaited minutes from the Federal Reserve's most recent meeting.

An account of the December confab, where the central raised interest rates for only the second time in about a decade, are due at 2 p.m. Eastern Time Wednesday. The minutes could shed more light on the pace of interest-rate hikes and how policy makers will respond to President-elect Donald Trump and influence currency markets.

Ahead of that release, the ICE dollar index dropped 0.3% to 102.95 as the greenback lost ground against most other major currencies. In recent days, the gauge has been touching levels last seen in 2002 (http://www.marketwatch.com/story/dollar-rallies-to-15-year-high-as-2016-optimism-continues-2017-01-03), according to FactSet data, as the dollar extends gains logged in the last three months of 2016.

"We're at something of an inflection point with the dollar," said Simon Smith, chief economist at FxPro, in a note.

"For the dollar to push ahead from here, we'd need to see the Fed follow through on [the] anticipated hikes, but also for Trump's bullishness on the economy to start to come to fruition," he added.

The Fed in December raised interest rates as expected, but also signaled a more aggressive approach to tightening in 2017 (http://www.marketwatch.com/story/fed-raises-interest-rates-and-adds-another-hike-to-its-2017-forecast-2016-12-14). The so-called dot plot, which illustrates officials' projections for future interest rates, showed the central bank has penciled in three rate increases in 2017 instead of a forecast for two increases back in September.

Meanwhile, the euro rose to $1.0429 from $1.0406 late Tuesday in New York. Inflation in the eurozone jumped to 1.1% in December, up from 0.6% in November and beating analyst forecasts.

"Despite headline inflation returning to an upward trend we expect that the ECB's preference will be to maintain the policy course it set out in December and 'look through' energy influenced price developments in coming months," said Cathal Kennedy, European economist, in a note.

Elsewhere, the yen rose, with the dollar fetching Yen117.55, down from Yen117.71 late Tuesday in New York.

The pound edged higher to $1.2263 compared with $1.2235 on Tuesday.

(END) Dow Jones Newswires

January 04, 2017 07:37 ET (12:37 GMT)

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