FOREX -Dollar climbs vs yen, U.S. jobs data eyed for more gains

Reuters

* Dollar index struggles near 8-month low

* Tuesday's U.S. payrolls data in focus

* Overnight implied volatility in dlr/yen, euro/dlr rise

By Anirban Nag

LONDON, Oct 21 (Reuters) - The dollar rose against the yenand the Swiss franc on Monday as some investors positioned for astrong U.S. jobs data reading on Tuesday, which could revivedebate about when the Federal Reserve will scale back monetarystimulus.

But the U.S. currency was pegged back against the euro, sterling and the higher-yielding Australiandollar, leaving it struggling near an eight-month low against abasket of currencies.

The dollar has been under pressure since the U.S. debtcrisis flared, with disruption from the 16-day governmentshutdown that ended last week leading markets to conclude theFed will delay plans to trim its bond buying for several months.

But the near-term focus was on the September jobs report,which was delayed due to the shutdown. It is forecast to show180,000 jobs were created last month while the jobless rate isexpected to remain steady at 7.3 percent.

If the data exceeds expectations, then speculation overwhether the Fed can taper this year or not is likely to return,injecting some volatility in the currency market.

The dollar index was flat at 79.688, not far from atrough of 79.478 touched on Friday, its lowest point sinceFebruary. The dollar edged up 0.3 percent against the yen to98.10 yen, inching towards a near three-week high of99.01 yen set last Thursday.

The dollar was 0.15 percent higher against the Swiss franc at 0.9035 francs.

"We forecast non-farm payrolls to increase by 200,000 andthe unemployment rate to decline to 7.2 percent," said ChrisWalker, currency strategist at Barclays. "Results in line withour forecast would likely lead to a broad dollar rally, asexpectations for a taper delay are pared back."

Barclays recommended long dollar positions against the yen.

While a majority of market players now expect the Fed willbegin reducing stimulus only next year, a few analysts stillbelieve tapering could start in December.

Those expectations may get a boost if a slew of upcomingU.S. data including the jobs report shows the economy gainedmomentum despite the fiscal stalemate that took the UnitedStates to the brink of default.

Some of that uncertainty was reflected in a pick-up inovernight implied volatilities, a gauge of how choppy a currencypair is likely to be. The euro/dollar vols ticked upto around 10.35 percent from around 4.5 percent on Friday.

Implied vols in dollar/yen also rose.

"We could see some dollar strength going into the payrollsdata, especially given the magnitude of the selloff in the pastfew days," said Ian Gunner, portfolio manager at Altana HardCurrency Fund.

"If the jobs number beats expectations and is backed up bygood retail sales and durable goods data we could see somespeculation of Fed tapering return. That could see the dollarstrengthen, but overall I would want to fade into such a move."

The euro was steady at $1.3678, not far from aneight-month high of $1.3704 on Friday on trading platform EBS,almost touching this year's peak of $1.3711.

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