October 23, 2013 / 11:27 AM / 4 years ago

FOREX-Dollar hit by bets on longer Fed stimulus

* Dollar index close to 9-month low, euro/dlr sets 2-year
    * Euro index at 2-year peak, could bother European
    * 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 on Wednesday after weak payrolls data prompted
investors to all but rule out a cut in U.S monetary stimulus
before next year.
    The dollar fell to as low as 79.137 against its
basket of currencies, nearing this year's trough of 78.918 set
in early February. It was last up 0.1 percent at 79.359. 
    It touched a two-year low versus the euro, pushing the
single currency to a two-year peak against its trade-weighted
basket. The euro's steep ascent could cause
concerns among European policymakers.  
    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. 
    Delayed 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 government
shutdown in Washington. 
    "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." 
    A majority of U.S. primary dealers polled by Reuters now
believe the Federal Reserve will not start cutting its $85
billion of monthly bond purchases until March. 
    Strategists pointed to the Fed's Oct. 29-30 policy meeting,
which could indicate whether there has been any substantial
change to Fed policymakers' views on the economy.
    The dollar fell 0.9 percent against the yen to 97.32 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 1.1 percent to
133.78 yen from Tuesday's four-year high of 135.52.  
    Against the dollar, the euro had risen as high as
$1.3793 on Tuesday, its highest level since November 2011. It
was last down 0.2 percent at $1.3750.  
    Strategists said if the euro's ascent gathered pace the
European Central Bank could adopt some form of verbal
intervention or other measures to dampen its strength. 
    "Euro/dollar is trading at new highs for the year and the
question is what will the response be from the ECB?" said Chris
Turner, head of FX strategy at ING in a note to clients.  
    "Euro zone headline inflation is low, and the ECB could
repeat its February stance that the strong euro increases
downside risks to inflation."
    He added that the ECB could hint at the need for more
monetary stimulus via new Long-Term Refinancing Operations
(LTRO) as it acknowledges that a "decline in excess liquidity
could be pushing up money market rates.
    "Investors seem happy to play the weak dollar trend against
the euro. $1.3710/30 looks a buy for a multi-day move to

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