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FOREX-Dollar falls after Fed minutes, dismantling of Trump council

* Dollar falls after Fed minutes show inflation worries

* Dollar index earlier hit highest level since July 28

* Dollar hits lows vs yen, euro, Swiss franc after minutes

* Graphic: World FX rates in 2017 http://tmsnrt.rs/2egbfVh (Recasts with release of Fed minutes; adds quote, data; updates from morning U.S. trading)

NEW YORK, Aug 16 (Reuters) - The dollar fell on Wednesday after the release of minutes from the Federal Reserve's July meeting that showed the policymakers had grown increasingly worried about weak U.S. inflation readings, suggesting that the Fed may hold off on raising interest rates.

Fed policymakers spoke at length at the meeting about a recent streak of soft inflation readings, according to the minutes. Inflation has remained below the central bank's 2 percent target for more than five years.

The dollar sank to session lows against the yen, euro, Swiss franc and a number of other currencies after the minutes were released.

"Weve gone from the last meeting where there were a few members worried about inflation undershooting 2 percent for a while, and that group is now many," said Richard Franulovich, senior currency strategist at Westpac Banking Corporation.

"The size of the cautionary group is expanding, and its expanding in ways that mean its, at the margin, a little less likely the Fed will be hiking rates in December," he said.

Fed funds futures prices show traders see just a 42 percent chance of an interest rate increase by year-end and now see a marginal chance of a rate cut, according to CME Group's FedWatch tool.

The greenback had been under pressure prior to the minutes' release as an exodus from and eventual disbanding of U.S. President Donald Trump's manufacturing council and strategic policy forum pushed the dollar from its previous gains.

Trump announced he was shuttering the manufacturing council after the chief executives of 3M and Campbell Soup Co announced they would leave it in protest over his comments about a violent weekend rally and death of one person in Charlottesville, Virginia. A second strategic and advisory group was dismantled as well.

Kathy Lien, managing director of BK Asset Management, called the latest development "another hit to the administration weighing on market sentiment and leading investors to sell more dollars."

Earlier, the dollar touched its highest level in nearly three weeks against a basket of rival currencies, boosted by expectations for another Fed interest rate rise in 2017 and cooling geopolitical fears.

The euro was last up 0.25 percent against the dollar at $1.1763. The dollar was down 0.45 percent against the yen, to 110.17 yen, and 0.7 percent lower against the Swiss franc, at 0.9659 franc.

(Reporting by Dion Rabouin; Editing by Leslie Adler)