* Graphic: World FX rates in 2019 http://tmsnrt.rs/2egbfVh
* Trade issues seen back in focus after release of Fed minutes
* Pound sags as lawmakers defect from May’s party, Fitch warning
By Shinichi Saoshiro
TOKYO, Feb 21 (Reuters) – The dollar held gains on Thursday after minutes from the Federal Reserve’s last meeting revived expectations for a possible U.S. rate hike this year while investors shifted their focus back to trade issues for fresh directional cues.
The greenback had edged up against the yen and trimmed losses versus the euro late on Wednesday after the Fed, in the minutes of its latest meeting in January, said the U.S. economy and its labour market remained strong, prompting some expectations of at least one more interest rate hike this year. dollar index against a basket of six major currencies was little changed at 96.500 .DXY =USD .
The Fed caught markets off guard last month after it took a dovish turn in its commentary, widely read as a sign it would suspend a three-year campaign to raise interest rates.
“The dollar drew some lift as the minutes appeared to have appeased market participants who were clinging to views that the Fed would hike rates one more time this year – but all in all, the minutes were in line with what the Fed said in January,” said Daisuke Karakama, chief market economist at Mizuho Bank.
“The market’s focal point will now shift back to trade. The U.S.-China trade negotiation deadline could be extended and that may mean Europe and Japan could be faced with trade issues.”
U.S. President Donald Trump on Wednesday said the United States would impose tariffs on European car imports if it cannot reach a trade deal with the European Union. dollar was a shade weaker at 110.785 yen JPY= after rising 0.25 percent overnight.
The euro was little changed at $1.1345 EUR= after being nudged off a two-week high of $1.1371 scaled earlier on Wednesday.
The pound dipped 0.1 percent to $1.3039 GBP=D3 after pulling back from a near three-week high of $1.3109 touched the previous day.
Sterling took a knock after three lawmakers defected from British Prime Minister Theresa May’s ruling Conservative party in a move that could undermine her Brexit strategy.
The pound was also weighed after Fitch Ratings said on Wednesday it may downgrade the United Kingdom’s “AA” debt rating based on growing Brexit uncertainty. Australian dollar was up 0.1 percent at $0.7169 AUD=D3 and in reach of a two-week peak of $0.7183 brushed on Wednesday.
The Aussie had risen the previous day as hints of progress in Sino-U.S. trade talks lifted the Chinese yuan.