By Dion Rabouin
NEW YORK (Reuters) - The dollar fell against the euro and yen on Wednesday, backing off a 14-year high against a basket of currencies with investors cautious about increasing bets on the greenback without fresh clues on the U.S. economy and the timing of interest rate increases.
The consolidation followed the dollar's surge to its highest levels since late 2002 on Tuesday, the first day of trading in 2017 for most financial centers, after U.S. manufacturing data beat expectations.
Minutes from the Federal Open Market Committee's December meeting that warned of growing inflationary risks from President-elect Donald Trump's proposed fiscal stimulus measures undercut the dollar and pushed the euro to $1.0499, its highest level of the day. But the euro retraced those gains a bit as investors unpacked the minutes.
"It’s really a mixed bag I read from the minutes because on the one hand the Fed sounded optimistic for the economy, but on the other hand the minutes took a swipe at the dollar’s strength," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington.
The euro <EUR=> was last up 0.6 percent at $1.0465. It was also was buoyed by data showing euro zone prices rose more quickly than expected in December and surveys suggesting business growth reached its highest in more than five years.
The dollar was last down 0.2 percent against the yen <JPY=> at 117.51 after rising to a high of 118.17 yen overnight.
The dollar has surged against most currencies since Trump's election win eight weeks ago, on expectations that his administration will boost growth and inflation, prompting the Federal Reserve to follow through with a series of interest rate hikes.
The Mexican peso <MXN=> hit its lowest level on record against the greenback, falling more than 2 percent to 21.62 pesos per dollar as fear grew that Trump's campaign pledges to enact protectionist U.S. trade policy could become reality.
The offshore Chinese yuan <CNH=> strengthened to 6.8707, its highest against the dollar since Dec. 6, as China stepped into both its onshore and offshore markets to shore up the faltering yuan for a second day.
China set its onshore midpoint rate lower than the market expected, leaving most investors, who were expecting further weakness in the currency, positioned in the wrong direction, said Greg Anderson, global head of foreign exchange strategy at BMO Capital Markets.
“The mini bubble was ripe for popping and it popped,” Anderson said.
(Reporting by Dion Rabouin; Editing by Dan Grebler and Meredith Mazzilli)