Dollar slips after Carney douses bets on European easing

By Sam Forgione

NEW YORK (Reuters) - The U.S. dollar slipped from a nearly eight-month high against the euro and a roughly three-month peak against the yen on Tuesday after comments from Chancellor Mark Carney cast doubt on expectations for more monetary stimulus in Europe.

Carney said the BoE would "undoubtedly" take sterling's weakness into account at its rate-setting meeting next week. His comments doused expectations that the central bank would cut rates again soon and also hurt expectations that the European Central Bank would lean towards more aggressive easing, analysts said.

In early September, the BoE said it was likely to cut rates again this year if the economy slowed as it expected.

"Carney’s comments cast doubt on easing from Europe," said Kathy Lien, managing director at BK Asset Management in New York. She said traders were likely covering short bets against the euro and sterling after Carney's remarks, leading the euro to recover against the dollar and sterling to pare losses.

The dollar index, which measures the greenback against a basket of six major currencies, has risen 3.4 percent this month. Expectations that the Federal Reserve would tighten monetary policy in December while central banks overseas engage in loose easing policies have fuelled the dollar's gains.

The index was last down 0.07 percent at 98.687 after touching a nearly nine-month high of 99.119 earlier.

The euro was last up 0.09 percent against the dollar at $1.0890, recovering from a roughly 0.3 percent loss earlier in the session that had taken the currency to a nearly eight-month low of $1.0851.

The dollar was last flat against the yen at 104.17 yen after hitting a roughly three-month high of 104.87 yen in morning U.S. trading. The dollar remained up slightly against the Swiss franc at 0.9943 franc, but off a nearly eight-month high of 0.9998 touched earlier.

Sterling was last down just 0.35 percent, paring losses after falling more than 1 percent to a more than two-week low of $1.2082 earlier.

"You caught the market leaning too long dollars," said Richard Scalone, co-head of foreign exchange at TJM Brokerage in Chicago.

Expectations that the Fed would hike rates in December remained strong and limited the dollar's losses. Traders last saw a more than 78 percent chance that the central bank would raise rates in December, according to CME Group's FedWatch programme.

(Reporting by Sam Forgione; Additional reporting by Jemima Kelly in London; Editing by Bill Trott and Chizu Nomiyama)