FOREX-Dollar finds steadier footing, takes breather from selloff

* Dollar index holds above previous day’s two-week low

* Euro back at sub-$ 1.1000 levels, Aussie back below $ 0.7900

By Ian Chua and Masayuki Kitano

SYDNEY/SINGAPORE, March 25 (Reuters) – The dollar hovered above a two-week low versus a basket of major currencies on Wednesday, pausing from the recent selloff sparked by doubts over how soon the Federal Reserve may start raising interest rates.

Investors had rushed to cut long dollar positions after the Federal Reserve took a dovish tone on interest rates last week, sending the greenback crashing back from multi-year highs.

The dollar index last stood at 97.152. On Tuesday it had set a two-week low of 96.387, down roughly 4 percent from a near 12-year high of 100.39 struck in mid-March.

The euro held steady near $ 1.0923, having backed off from Tuesday’s intraday high of $ 1.10295.

“The price action is consistent with our expectation that longer-term oriented market participants will be keen to buy USD above $ 1.10 and we suspect that underlying flows from euro zone investors will continue to limit scope for EUR rallies,” analysts at BNP Paribas wrote in a note to clients.

Still, the euro remained well clear of a 12-year trough of $ 1.0457 set on March 16, having pushed higher against the dollar in the past week after the Fed signalled a more cautious outlook for U.S. economic growth and posited more gradual interest rate hikes.

Position-squaring and profit-taking ahead of the quarter-end could give the euro a further lift versus the dollar in the near term, said Lee Jin Yang, macro research analyst for Aberdeen Asset Management in Singapore.

“One of the key consensus trades that will come under pressure will be definitely the euro. $ 1.10 to $ 1.12 is a key area… If it breaks higher, we may see more position unwinding,” Lee said.

Latest data from the U.S. Commodity Futures Trading Commission shows that currency speculators had increased their bearish bets against the euro after the European Central Bank began its quantitative easing programme this month.

Net short positions in the euro stood at 193,774 contracts in the week ended March 17, the most since early February when euro-bearish bets hit the highest level in 2-1/2 years.

Later on Wednesday, investors will turn their focus to a reading of German business morale as well as U.S. durable goods data and a speech by the president of the Chicago Fed.

The dollar eased 0.1 percent versus the yen to 119.61 yen , but held above Tuesday’s three-week low of 119.22 yen.

The Australian dollar held steady at $ 0.7875, having pulled back from a near two-month high of $ 0.7939 set on Tuesday.

U.S. data on Tuesday had been modestly dollar-friendly, particularly an uptick in underlying inflation which should support the view that the Federal Reserve will raise rates this year.

(Editing by Eric Meijer)