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FOREX -Dollar steady, but seen vulnerable as Fed tapering view recedes

Hideyuki Sano and Masayuki Kitano
Monday, 21 Oct 2013 | 12:01 AM ET

* Dollar index near 8-month low

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

* Euro within sight of 2013 high

* Dollar/yen in triangle holding pattern

TOKYO/SINGAPORE, Oct 21 (Reuters) - The dollar was mired near an 8-month low against a basket of currencies on Monday on growing expectations the U.S. Federal Reserve will have to delay scaling back its stimulus following a 16-day government shutdown.

The dollar index held steady at 79.675 , not very far from a trough of 79.478 touched on Friday, its lowest level since February.

"In the last two months, previous payrolls figures were revised down. The U.S. economy is losing steam and cannot withstand tapering," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank.

"There will be disappointment at every Fed meeting for the rest of the year, and each time the dollar will weaken," he added.

The Fed has two policy meetings scheduled this year, one on Oct. 29-30 and the other on Dec. 17-18.

A majority of market players now expect the Fed will begin reducing stimulus next year, though some analysts believe tapering of its bond-buying programme is still possible in December.

Expectations of a delay in reducing the Fed's stimulus is likely to strengthen unless a run of upcoming U.S. data shows that the economy somehow gained momentum despite the disruption caused by the government shutdown.

Traders are now looking to September U.S. payrolls due on Tuesday, with the market forecasting a jobs gain of 180,000, although the data will shed little light on the impact of the policy paralysis in Washington.

The euro fetched $1.3678, down 0.1 percent on the day. The euro had hit an eight-month high of $1.3704 on Friday on trading platform EBS, almost touching this year's peak of $1.3711.

While the euro is likely to stay firm, the speed of its rise could slow since speculators have already piled up bullish bets on the euro, said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

"I think that just might frustrate the ability to increase long positions again in euros," Kotecha said.

Data on currency futures positions on the Chicago Mercantile Exchange shows that speculators had increased their net long position in the euro to 65,844 contracts in the week to Sept. 24, the highest since May 2011.

Against the yen, the euro edged up 0.1 percent to 133.99 yen , hovering near a four-year peak of 134.95 yen set in September.

The dollar edged up 0.2 percent against the yen to 97.95 yen , but was still some ways off from a near three-week high of 99.01 yen set last Thursday.

The dollar/yen pair has been in a triangle holding pattern after hitting a five-year high of 103.74 yen in May as yen-selling propelled by the Bank of Japan's aggressive monetary easing has run its course.

Many traders expect the dollar to remain in this holding pattern for the moment, though the risks for the greenback could grow if it breaks below its key 200-day moving average, currently at 97.18 yen.

"The basic backdrop is that we are in a risk-on situation, with both the yen and the dollar weak," said Koji Fukaya, CEO at FPG Securities in Tokyo, adding that the dollar could stay range-bound versus the yen for the time being.

The Australian dollar held near four-month highs as the currency benefitted from rising risk appetite after U.S. lawmakers struck a deal last week to avert a U.S. debt default.

The Aussie eased 0.1 percent to $0.9662, staying near Friday's four-month high of $0.9680.

Against the yen, the Aussie dollar touched a four-month high 94.76 yen earlier on Monday and was last up 0.2 percent on the day at 94.66 yen.