* Federal Reserve keeps rates unchanged, on track to hike more
* Yen edges higher vs dollar on higher 10-year JGB yields
* Sterling dips 0.2 pct ahead of Bank of England meeting
By Daniel Leussink
TOKYO, Aug 2 (Reuters) - The U.S. dollar held on to gains against a basket of its peers on Thursday, after the Federal Reserve gave an upbeat assessment of the world’s biggest economy and stayed on course to gradually lift interest rates.
The dollar was already well bid by concerns about a further escalation in the Sino-U.S. trade dispute and higher U.S. Treasury yields.
After ending its two-day policy meeting, the Fed kept interest rates unchanged as widely expected, and said U.S. economic growth has been rising strongly and the job market has continued to strengthen.
“The Fed delivered rather hawkish comments in the statement emphasizing the strength of the U.S. economy,” said Osamu Takashima, head of G10 FX strategy, at Citigroup Global Markets Japan.
“There was no big surprise in last night’s statement, but the overall tone was a little bit stronger than last one.”
The dollar index, which measures the greenback against a basket of six currencies, was a shade higher on Thursday compared to the previous day to trade at 94.700, well off a 3-1/2-week low of 94.084 hit last week.
Global financial markets remained focused on the U.S.-driven international trade war, with U.S. administration officials saying on Wednesday that President Donald Trump is proposing a higher 25 percent tariff on $200 billion worth of Chinese imports.
The safety bid for the dollar was further bolstered by higher U.S. Treasury yields.
The dollar was under pressure against the yen, as the currency found support on the back of benchmark Japanese government bond yields touching a fresh 1-1/2-year high.
The dollar dropped 0.15 percent to 111.56 yen though it still held on to much of its gains made on Tuesday following the Bank of Japan’s pledge to keep rates low for an extended period, even as it made a new commitment to allow yields to move more freely.
“The yen has weakened as a result of the BOJ’s new forward guidance, but it’s not that anything major has changed,” said Minori Uchida, chief currency analyst at MUFG Bank.
“Nobody really believed anyway that the BOJ’s quantitative easing would be ended this year or next year. I think the view that the yen will weaken as a result of the BOJ’s forward guidance is fading,” he said.
The Japanese central bank decided on Tuesday to add forward guidance communication in its regular policy statements, which it did not do in the past.
The euro remained soft against the dollar, trading 0.1 percent lower at $1.16505.
The British pound was a tad lower, losing 0.2 percent to $1.3105 ahead of the Bank of England’s policy meeting later on Thursday, with markets widely expecting interest rates to be raised for the second time since the global financial crisis.
The Australian dollar, seen as a proxy for Chinese growth because of Australia’s export-reliant economy, slipped 0.3 percent to around $0.7385.
The Canadian dollar traded at C$1.3013, near Wednesday’s seven-week high of C$1.2975.
The Mexican peso changed hands at 18.610 on the dollar , near Monday’s three-month high of 18.498 after finding support on growing optimism about the renegotiation of the North American Free Trade Agreement.
Editing by Shri Navaratnam; Editing by Sam Holmes
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