Dollar off 6-1/2-month lows; Fed minutes in focus

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - The dollar rose on Tuesday from recent lows as traders bet on a U.S. interest rate hike in June and awaited Wednesday's release of the minutes of the U.S. Federal Reserve's meeting in early May.

The dollar index (.DXY), which tracks the greenback against six major rivals, was up 0.43 percent at 97.405 and on pace for its best day in two weeks. The index fell to a more than six-month low on Monday.

Some traders had recently bet on the dollar's decline, and the currency's sell-off prompted them to book profits.

"It's a little bit of profit-taking on some of the currency pairs," said Alfonso Esparza, senior currency analyst at OANDA in Toronto.

The dollar had been under pressure from worries about U.S. President Donald Trump's recent firing of Federal Bureau of Investigation Director James Comey, who was overseeing a probe into possible links between the president's team and Russia, and concerns about possible delays in Trump's economic stimulus plans.

On Tuesday, U.S. Treasury Secretary Steven Mnuchin said while he hoped to get tax reform done this year, it would not happen by August.

The Trump administration believes its budget plan will boost economic growth by fostering capital investment and creating jobs, Mnuchin said.

Traders were also looking to the Fed's latest policy-setting meeting minutes, set to be released at 2 p.m. E.T. (1800 GMT) on Wednesday, for clues on whether the central bank will raise rates at its June meeting, Esparza said.

Interest rate futures implied traders saw about an 83 percent chance of a rate increase in June, up from 79 percent on Monday.

"We haven't heard from any Fed members clarifying or warning the market that they are on the wrong side. That's a positive sign that June is still a go," said Esparza.

The euro weakened despite another strong batch of numbers from flash European purchasing manager surveys and a rise in German business morale to an all-time high.

The euro was down 0.54 percent against the dollar at $1.1175. The euro touched $1.1267, its highest since Nov. 9, earlier in the session.

"There are still huge question marks about British elections and Brexit that will always keep a cap on how much the euro can really rise," Esparza said.

Sterling fell 0.25 percent against the greenback to $1.2965 as investors awaited further developments in Britain's suspended election campaign after a suicide bombing rocked the English city of Manchester.

(To view a graphic on 'Global foreign exchange rates' click http://fingfx.thomsonreuters.com/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/index.html)

(Reporting by Saqib Iqbal Ahmed; Editing by Chizu Nomiyama and Richard Chang)