* Dollar index holds above 6-1/2 month lows
* Focus turns to Fed minutes
* Swedish crown hits 8-day high vs euro
* Graphic: World FX rates in 2017 tmsnrt.rs/2egbfVh
By Ritvik Carvalho
LONDON, May 24 The dollar stayed pinned near
6-1/2-month lows on Wednesday, investors' focus shifting from
U.S. politics to monetary policy after comments from a Federal
Reserve official rekindled expectations of an interest rate hike
Diminishing expectations of a promised fiscal boost to the
U.S. economy from President Donald Trump and a resurgent euro
have erased nearly all of the dollar's gains since the U.S.
leader's election in November.
But the greenback got a boost this week after the head of
the Philadelphia Fed, Patrick Harker on Tuesday reiterated his
support for a total of 3 rate rises this year, adding that a
rate hike in June was a "distinct possibility".
The dollar index, which measures it against a basket of
peers, remained well above its November lows in European trade
on Wednesday, up 0.1 percent at 97.363 as traders awaited
minutes from the Federal Reserve's latest meeting, due at 1800
Richard Falkenhall, currency strategist with SEB in
Stockholm, said a hawkish tilt in the Fed's last monetary policy
statement had altered market expectations significantly towards
a June hike.
"People may have the view that the minutes also can be
tilted towards the hawkish side. I think that could be a
temporary thing supporting the dollar right now," he said.
Recent U.S. data has been sub-par, with Citi's Economic
Surprise Index for the U.S. at its lowest level
since February 2016, indicating that data has been coming in
under market expectations. That could temper expectations from
the Fed for a June hike, although the Fed noted in its last
statement that the weakness from data would be "transitory".
The dollar was marginally lower against the euro, which has
enjoyed a bull run this month on factors including an ebb in
French political concerns, upbeat euro zone data, and a widening
German-U.S. government debt yield spread.
The euro was up less than 0.1 percent at $1.1192,
having scaled a 6-1/2-month high of $1.1268 on Tuesday. It fell
to an 8-day low against the Swedish crown after the
Swedish central bank called on regulators to introduce a
leverage ratio requirement on the country's banks.
MOODY'S DOWNGRADES CHINA
Earlier, Moody's Investors Services downgraded China's
long-term local and foreign currency issuer ratings by a notch,
citing expectations that the financial strength of the world's
second-biggest economy would erode in the coming years.
China's offshore yuan slipped in a knee-jerk reaction but
the overall response was limited. The yuan fell to 6.8897 per
dollar, down by 0.1 percent.
The Australian dollar, sometimes used as a proxy of
China-related trades, eased slightly but reaction to the
downgrade was also relatively subdued. The Aussie was down less
than 0.1 percent at $0.7472.
"The downgrade is just one notch and Chinese paper remains
investment grade," Rabobank said in a note.
"However, it is another negative signal that will serve to
reinforce the message provided by a host of recent headlines
regarding the risks surrounding Chinese debt. For the economies
that export heavily into China, the impact of a shock related to
a bursting of a debt bubble could be grave."
(Reporting by Ritvik Carvalho, additional reporting by Tokyo
markets team; Editing by Raissa Kasolowsky and Richard Lough)