Dollar close to highs as Fed minutes back hike bets

The dollar edged down but stood close to a seven-month high in early Asian trading, getting a lift from Federal Reserve officials' comments as well as the central bank's latest meeting that hinted that an interest rate hike could be right around the corner.

The dollar index was down about 0.2% at 99.436, after hitting a high of 99.853 overnight, closing in on its 12-year peak of 100.39 set in March.

The minutes showed that Fed policymakers made an unusually direct reference to a possible December rate increase at the central bank's October 27-28 meeting.

A chorus of Fed officials also backed investors' expectations of a rate hike, with Fed President Dennis Lockhart, New York Fed President William Dudley and Cleveland Fed President Loretta Mester all expressing confidence that the policy tightening, when it comes, will be implemented smoothly for markets.

"It seems the argument has moved on from when the Fed will raise rates to how many hikes we will see in 2016," Chris Weston, chief market strategist at IG Ltd in Melbourne, said in a note to clients on Thursday.

The Fed funds futures curve is pricing in just over two hikes throughout 2016, which Weston said was the best guide for trading the dollar.

"With a further widening of the US Treasury/German bund yield spread, the odds of traders buying the US dollar ahead of the 16 December FOMC meet and then selling once we get confirmation of the hike seems elevated," Weston said.

Against the yen, the dollar inched down about 0.1% to 123.50 yen after scaling a three-month peak of 123.77 yen after the Fed minutes.

The Bank of Japan will conclude a two-day monetary policy meeting on Thursday, at which it is widely expected to hold steady despite the country's slip into a technical recession after two quarters of contraction.

The decision is expected sometime around 0300 GMT.

At his post-meeting briefing, BOJ Governor Haruhiko Kuroda is expected to reiterate that tightening labour markets will push up wages and help Japan recover from a temporary soft patch.

Some economists, though, fear the soft patch is deeper than officials admit. Ministry of Finance data released early on Thursday showed that Japan's exports fell 2.1% in October, posting the first year-on-year decline in more than a year, underscoring weak external demand hit by China's slowing growth.

The euro added about 0.2% to $1.0677 , not far from Wednesday's fresh seven-month low of $1.0617, with expectations that the European Central Bank will take fresh monetary easing steps next month continuing to pressure the common currency.