Dollar's bounce falls flat before data; euro drifts up

By Saikat Chatterjee

LONDON (Reuters) - The dollar's bounce faded on Thursday after the U.S. Federal Reserve's policy minutes failed to provide a clear picture of future interest rate increases, although investors were reluctant to add bearish bets before some key data.

Federal Reserve policymakers were split on the outlook for inflation and how it might affect the future pace of interest rate rises, according to the minutes of the Fed's last policy meeting on June 13-14 released on Wednesday.

"The latest Fed minutes indicate that (Chair) Janet Yellen is preparing the ground work for unwinding its balance sheet at the end of the year and markets aren't expecting large interest rate increases for now," said David Madden, markets analyst at CMC Markets in London.

The dollar was broadly flat at 113.35 Japanese yen in early trading after rising more than 1 percent this week.

Against the euro, the dollar weakened in a lackluster session trading 0.2 percent at a day's low of 1.13735.

The minutes of the ECB meeting nudged the euro higher as bond yields rose, though the single currency hemmed within recent trading ranges.

Markets appeared to ignore comments from ECB Chief Economist Peter Praet on Thursday that euro zone growth is accelerating but a "steady-hand" policy from the European Central Bank was still needed to revive inflation.

However, analysts were wary of betting against the dollar before U.S. data on tap later in the day which includes ADP employment, ISM non-manufacturing PMI and the initial jobless claims report.

The dollar's continued strength against emerging market currencies such as the South African rand and Turkey's lira would also deter short sellers.

Stronger-than-expected non-farm payrolls data on Friday would mean the dollar may find some support around current levels, analysts said.

Investors will also look to comments from San Francisco Fed President John Williams and Fed Board Governor Jerome Powell for their potential impact on U.S. yields.

In terms of trading ranges, the dollar index was comfortably within recent established ones with the basket of currencies <.DXY> holding below a 20-day moving average it broke below last week.

Markets were also waiting for the European Central Bank's June policy meeting minutes due later on Thursday.

(Additional reporting by Shinichi Saoshiro and Tokyo Markets Team; Editing by Jon Boyle)

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