* Dollar index wallows at fresh three-week lows
* On track for its biggest weekly fall in nine months
* Chinese inflation data next in focus
By Ian Chua
SYDNEY, April 11 (Reuters) - The dollar is on track for its biggest weekly fall in nine-months early on Friday, having given up all of its recent gains as markets become increasingly convinced that any interest rate hike by the Federal Reserve is still a long way off.
Minutes from the Fed's March meeting released mid-week appeared to have hit home the message that the U.S. central bank is nowhere near tightening even as it has begun to unwind its bond-buying stimulus.
The dollar index last stood at 79.399, having fallen as far as 79.330. It is now back at levels seen before March 19 when Fed Chair Janet Yellen hinted at the possibility of an interest rate hike as soon as early next year.
The index is down 1.28 percent so far this week. If sustained, this will be its biggest weekly fall since mid-July 2013.
Softness in the greenback also coincided with further declines in U.S. Treasury yields. The benchmark 10-year yield has fallen to its lowest in nearly four weeks at 2.63 percent, which in turn makes the dollar less attractive.
"The FOMC is working so hard to reassure markets that it will not tighten too much, too soon, that it risks unsettling the carefully constructed forward guidance put in place last year to prepare markets for eventual policy normalisation," said Societe Generale strategist Kit Juckes.
"This is breathing new, temporary life into carry trades, and undermining the U.S. dollar," London-based Juckes wrote in a note to clients.
Against the yen, the greenback dipped to three-week lows of 101.33, nearing solid chart support seen around 101.20. The euro climbed as far as $1.3900, a high not seen since March 19.
Traders said fervent demand for Greece's first bond sale just two years after it defaulted was positive for the common currency as well.
Investors all but shrugged off dovish comments from the head of the European Central Bank.
Mario Draghi again said that the bank was ready to start quantitative easing to deal with risks of low inflation, but added that inflation expectations were anchored at the bank's target for now.
Since carving out a two-week trough of 140.08 yen earlier in the week, the euro has been drifting between 140.46 and 141.56 .
One of the best performer this week is the Australian dollar, which has rallied to five-month highs above 94 U.S. cents.
Upbeat jobs data at home on Thursday meant the Reserve Bank of Australia will be able to keep to its pledge of maintaining interest rates steady for some time.
Chinese inflation data due around 0030 GMT will be a key focus for Asia on Friday. Any upside surprise may unsettle markets because it will probably be seen as limiting further stimulus if needed.
Chinese Premier Li Keqiang on Thursday ruled out major stimulus even as big falls in imports and exports added to concerns about a slowdown.
(Editing by Shri Navaratnam)
- Budget, Tax & Economy