FOREX-Euro eyes 2013 peak, dollar hamstrung by Washington impasse

Reuters

* Euro holds firm, not far from this year's peak of $1.3711

* U.S. budget woes keeping dollar pinned down

* BOJ policy meeting outcome in focus, no fresh stimulusexpected

By Ian Chua

SYDNEY, Oct 4 (Reuters) - The euro started trade in Asia onFriday within striking distance of its 2013 peak, having pushedhigher for a second session thanks to a flow of encouraging eurozone data at a time when a U.S. government shutdown is keepingthe dollar pinned at 8-month lows.

The common currency last traded at $1.3630 afterstretching as far as $1.3646, a level not seen since earlyFebruary when it scaled this year's peak of $1.3711. It hasrisen 0.8 percent on the dollar so far this week.

A number of factors supported the euro not least a surveyshowing Italy's services sector unexpectedly grew in Septemberfor the first time in more than two years.

In contrast, growth in the massive U.S. service sectorcooled last month, making for an uncomfortable read just as theshutdown in Washington is fuelling concerns of wider economicconsequences.

Fears are also growing that the current impasse would mergewith a much more complex fight looming later this month overraising the federal debt limit. Failure to do so may lead to ahistoric debt default.

This also means the Federal Reserve will be in no hurry toscale back its massive stimulus, a signal for dollar bulls tohold back.

The dollar index, which tracks the greenback'sperformance against a currency basket, wallowed at aneight-month low, having shed 0.7 percent so far this week.

Two senior Fed officials warned of damaging consequences ifthe nation defaults on its debt and said monetary policy wasbeing kept easier to help offset the harm caused by politicalfighting.

"The dollar will be hobbled as long as the U.S. budget/debtuncertainties reign, but we are optimistic a resolution will befound before the 17 October deadline," analysts at SocieteGenerale wrote in a client note.

As a result, they recommend investors sell the euro intostrength against the dollar. They also suspect the EuropeanCentral Bank will eventually be forced into action by euro areadisinflation and falling excess liquidity, an outcome that willweigh on the euro.

Against the yen, the dollar stood at 97.20, havingslid to a five-week low of 96.93. The euro fared better, risingto a high of 133.21 yen before retracing to 132.52.It was well off this week's trough around 131.39.

The yen's fortunes hinge on the outcome of the Bank of Japanmeeting expected around 0230-0500 GMT, followed by a brief mediaconference from BOJ Governor Haruhiko Kuroda at 0630 GMT.

But no one is expecting any fireworks with the BOJ seenmaintaining its stimulus and reiterating its view that theeconomy is strong enough to weather next year's sales taxincrease without additional policy measures.

With the U.S. standoff keeping risk appetite at bay,commodity currencies struggled to capitalise on the soft dollar.The Australian dollar was firm at $0.9405, but still inthis week's $0.9280-$0.9435 range.

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