FOREX-Dollar slumps as prospects of Fed trimming stimulus fades
* Dollar index touches close to 9-mth low, euro/dlr sets
2-yr high
* Euro index at 2 year peak, could bother European
policymakers
* Weak U.S. jobs data cements view Fed stimulus to stay
By Anooja Debnath
LONDON, Oct 23 (Reuters) - The dollar struggled near a nine
month low versus a basket of currencies on Wednesday after U.S.
jobs data prompted investors to all but rule out the chances of
a cut in U.S monetary stimulus before next year.
The greenback also touched a fresh two-year low versus the
euro. This pushed the single currency to a two-year peak against
a trade-weighted basket of currencies and
strategists said if the ascent gathered pace they expected
European policymakers to complain about the euro's strength.
The dollar fell to as low as 79.137 against a basket
of currencies, nearing this year's trough of 78.918 set in early
February. It was last flat at 79.318.
The U.S. currency also extended losses against the yen -
generally used as a safe haven by investors in times of
political and economic uncertainty - as a drop in regional
shares dented sentiment in Asia. Chinese equities fell
1.2 percent.
A delayed batch of data on Tuesday showed U.S. employers
added far fewer workers than expected in September, suggesting
the economy may have lost some momentum even before the 16-day
partial shutdown of the federal government.
"The weaker-than-expected payrolls report certainly supports
investors expectations that the Fed is likely to delay tapering
quantitative easing into at least the first quarter of next
year," said Lee Hardman, currency economist at BTMU.
"In the very near-term the dollar is likely to remain on the
defensive even if the data begins to improve. Now that the
shutdown has ended, it is going to take time to have greater
clarity on the trajectory of the U.S. economy. It is going to be
difficult for the Fed to begin tapering before year end now."
A majority of U.S. primary dealers polled by Reuters now
believe the Federal Reserve will not start cutting its current
$85 billion a month bond buying until March.
The euro was down 0.2 percent at $1.3760. It had
risen to as high as $1.3793 on trading platform EBS, to reach
its highest level since November 2011.
CLARITY
Sim Moh Siong, FX strategist for Bank of Singapore said that
in the near-term, the dollar could see further weakness against
other major currencies such as the euro and sterling and that
the single currency may rise towards levels around $1.39.
"I think there's certainly a high possibility that dollar
weakness might extend a bit further, but I'm not really sure
that it changes the medium-term dollar picture," he said,
pointing to the Fed's Oct. 29-30 policy meeting, which could
provide clarity on whether there has been any substantial change
to Fed policymakers' views on the economy.
The dollar fell 0.8 percent against the yen to 97.33 yen
, testing its 200-day moving average, now at about 97.27
yen, which was acting as near-term support.
The yen rose broadly, with the euro falling 1.0 percent to
133.59 yen, down from Tuesday's four-year high of
135.52 yen.
Strategists said that in an environment where the Fed is
likely to keep its stimulus taps running, high-yielding
currencies, like the Australian dollar, are likely to benefit.
The Aussie had earlier scaled a 4-1/2 month high of
$0.9758 against the U.S. dollar after a forecast-beating
inflation reading reduced the chances of further interest rate
cuts from Australia's central bank.
