* Euro holds near two-year high against dollar
* Fed expected to stand pat, could fuel dollar selling
* Speculation grows ECB may talk down euro
By Wanfeng Zhou
NEW YORK, Oct 28 The dollar edged higher on
Monday but held close to a nine-month low against major
currencies on expectations the Federal Reserve will continue its
massive asset purchase program well into next year.
The Federal Open Market Committee, the Fed's policy-making
arm, meets this week and is unlikely to make any shift to
monetary policy as it awaits more evidence of how badly
Washington's budget battle hurt the economy.
Most expect the U.S. central bank will not begin reducing
its $85 billion per month bond-buying program until March 2014.
The dollar has lost more than 2 percent and erased all of
its gains for the year since the Fed stunned markets in
September by opting against slowing its stimulus program. But
some analysts say further weakness may be limited because a
delay in stimulus reduction now looks mostly priced in.
Samarjit Shankar, director of market strategy at BNY Mellon
in Boston, said the firm's currency flow indicators reveal "an
interesting turn in sentiment toward the beleaguered greenback,"
having seen renewed modest net inflows into the dollar over the
past four days, a change from recent weeks during which the
currency has been steadily net sold.
"Whether this is a tactical foray back into the U.S. dollar
or a strategic allocation remains to be seen," he said.
The dollar index, which tracks the greenback against a
basket of six major currencies, rose 0.1 percent to 79.308
. It hit a nine-month low of 78.998 on Friday.
The Fed is slated to release a statement on its policy
decision on Wednesday at the end of its two-day meeting, at 2
p.m. (1800 GMT).
"It may turn out that a neutral FOMC is a green light to
keep selling the dollar until November headline data begin
appearing in early December, but ... there is already a lot of
dovishness priced in," Steven Englander, global head of foreign
exchange strategy at CitiFX, a division of Citigroup in New
York, said in a research note.
Currency speculators decreased their bets in favor of the
U.S. dollar to the lowest since February in the week ended Oct.
1, data from the Commodity Futures Trading Commission showed on
The government's 16-day partial shutdown in October
interrupted data gathering, muddying the picture for Fed
policymakers seeking signs on the economy's strength. Data
released since the shutdown ended, some of which covered
September, has been surprisingly weak.
The dollar slightly pared gains after private industry data
showed U.S. pending home sales dropped by the most in more than
three years in September. Separate data showed U.S.
manufacturing output rose by a scant 0.1 percent in September.
The euro slipped 0.1 percent to $1.3789, having risen
to $1.3832 on Friday, its highest level since November 2011,
according to Reuters data.
Investors are wary of pushing the euro much higher as
speculation has grown that European Central Bank policymakers
may talk down the euro after recent economic data, including
German business confidence and purchasing managers' index
surveys, highlighted the fragile economic recovery.
"Euro-zone policymaker concern is probably the biggest
restraint for a euro/dollar that looks technically mobile toward
the $1.3980/4000 area," said Tom Levinson, currency strategist
at ING. "The dollar index looks primed for a test of support in
the 78.60/90 area in coming days."
The dollar rose 0.3 percent to 97.65 yen, above a
more than two-week low of 96.92 yen hit on Friday, according to
Reuters data. The Bank of Japan is expected to maintain its
monetary policy stimulus on Thursday to meet its target of 2
percent inflation in two years.