October 30, 2013 / 1:36 PM / 4 years ago

FOREX-Dollar steady ahead of Fed policy decision; upside seen

* Dollar index steady but jobs data weighs
    * Traders trim bearish dollar bets before Fed decision
    * Markets priced for Fed leaving stimulus intact until 2014
    * Euro up slightly after solid euro zone sentiment data

    By Julie Haviv
    NEW YORK, Oct 30 (Reuters) - The dollar held steady against
a basket of major world currencies in thin trade on Wednesday,
with investors wary of taking bold positions before a
post-policy meeting statement from the Federal Reserve.
    The dollar dropped after private sector jobs data emboldened
expectations that the Federal Reserve will keep its stimulus of
bond purchases status quo well into next year.
    The ADP National Employment Report showed U.S. companies
hired 130,000 workers this month, below the 150,000 forecasted
by economists polled by Reuters. 
    The Fed is expected to maintain its $85 billion per month
bond-buying campaign when it concludes a two-day meeting later
on Wednesday. It may point to softer readings on the U.S.
economy to signal the policy will be extended into 2014.
 
    The Federal Open Market Committee, the Fed's policy-setting
arm, will announce its decision at 2 p.m. (1800 GMT). 
    Data showing U.S. consumer prices rose modestly in September
but showed little sign of underlying inflation was viewed as
giving the Fed scope to maintain its monthly bond purchases.
 
    "The private sector jobs data reflects a labor market that
shifted to lower gear in recent months and feeds into forecasts 
that the Fed will hold off on tapering until late in the first
quarter of 2014," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington D.C.
    A majority of U.S. primary dealers polled by Reuters last
week said the Fed would not start cutting monthly bond purchases
until next March.      
    "The dollar has sold off so much in recent weeks that the
bias is for a stronger dollar if the Fed is not overly dovish
this afternoon," he said. 
    The dollar index, which tracks the greenback against six
currencies but is dominated by the euro, traded flat at 79.580
, below an eight-day peak of 79.692 earlier in the global
session but well above Friday's nine-month low of 78.998.  
    Analysts said expectations of a delay to Fed tapering,
probably until at least March, may be already priced into the
dollar, prompting investors who sold the U.S. currency in recent
days to start buying it back.
    "With the Fed event risk people don't want to enter new
short positions," said Chris Turner, head of currency strategy
at ING.
    However, he said the dollar was likely to turn weaker after
the Fed announcement, potentially pushing the euro beyond its
recent highs, unless policymakers stressed the economic impact
of this month's U.S. government shutdown would be temporary.
    The euro, meanwhile, turned slightly higher after data
showed a jump in euro zone sentiment in October, which offset
figures revealing an unexpected rise in the German jobless
total.  
    The euro was up 0.1 percent at $1.3754, having backed
off a 23-month peak of $1.3832 set on Friday. Traders said the
euro's failure to make a sustained break above $1.3800 left it
vulnerable to a correction. 
    Nevertheless, the euro remained supported by comments on
Tuesday by European Central Bank Governing Council member Ewald
Nowotny, who said he saw no tools the central bank could use to
dampen a strengthening euro. 
    Against the yen, the dollar was flat at 98.22 yen,
having earlier hit a one-week high of 98.31 yen.
    Meanwhile, the Australian dollar was up 0.3 
percent at $0.9502, recovering from an earlier 2-1/2 week low of
$0.9459 after Reserve Bank of Australia Governor Glenn Stevens
said the currency was "unusually high".

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