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FOREX-Dollar gains after data boosts Fed taper hope

Wanfeng Zhou
Wednesday, 4 Dec 2013 | 10:03 AM ET

* U.S. private sector hiring rose by the most in a year

* Euro falls versus Swiss franc on mixed data, ahead of SNB

* Aussie hits three-month low versus dollar after growth data

NEW YORK, Dec 4 (Reuters) - The dollar rose against the euro and the yen on Wednesday after a batch of data boosted expectations the Federal Reserve may start scaling back its massive stimulus program sooner than expected.

The euro fell on concern about an uneven recovery in the currency bloc. It hit a two-month low versus the Swiss franc on hedge funds selling ahead of next week's Swiss National Bank meeting, at which it is likely to reiterate its commitment to the euro/Swiss peg of 1.20 francs.

U.S. private sector hiring rose by the most in a year in November, while economic activity in the private sector bounded back, reports showed.

Separate data showed the U.S. trade deficit narrowed in October as exports hit a record high, pointing to a pick-up in global demand that should help to support domestic growth in the fourth quarter.

"This is probably a slight upside bias to the dollar," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange.

"However, I still think there's a very very low chance of any Fed taper before 2014 and so that might ultimately keep the dollar largely range bound heading into the end of the year."

The euro fell 0.4 percent to $1.3531. Service sector data showed activity in Italy and France contracting in November but expanding in Spain and Germany, highlighting the divergence in the bloc.

The dollar gained 0.1 percent to 102.60 yen, having traded as high as 102.83, according to Reuters data. The dollar index was slightly lower on the day at 80.907.

Markets are eyeing U.S. gross domestic product data on Thursday and the non-farm payrolls report on Friday, which investors will study for clues about when the Fed will taper its monetary stimulus. Its next policy meeting is on Dec. 17-18.

Many investors and analysts expect the Fed to begin reducing stimulus at its March meeting, so an upbeat employment report would increase speculation that tapering could come earlier.

Manuel Oliveri, currency strategist at Credit Agricole who expects the Fed to begin tapering in January, said this could be the most important week of the year for the dollar.

He added: "There's a lot of risk for the dollar to appreciate on the back of surprise data from the United States."

The euro fell 0.1 percent to 1.2276 Swiss franc, having hit as low as $1.2258 on trading platform EBS, the weakest since early October.

The European Central Bank meets to set policy on Thursday, after last month unexpectedly cutting its key interest rate to a record low of 0.25 percent.

"People are (also) looking at what could potentially happen at the ECB tomorrow," said Geoffrey Yu, currency analyst at UBS. "There might be a few people expecting them to ease. I don't think we're going to get anything."

The Australian dollar fell to a three-month low after data showed 0.6 percent growth in GDP in the third quarter, below analysts' median forecast of 0.8 percent.

The Aussie fell 1.4 percent to $0.9010, breaking through the key support level of $0.9050/55. A sustained break could see a retracement all the way to this year's low of $0.8848.

Hedge funds have been negative on the Aussie for some time. CQS founder Michael Hintze, whose firms runs around $12 billion, told Reuters last month that he was short the Australian dollar, citing the "very, very clear" wish of central bank governor Glenn Stevens for it to weaken.