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
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.