* Dollar near two-week lows against currency basket
* U.S. jobless claims fall, reading clouded by technical
* Euro/dollar and dollar/yen one-week implied vols jump
By Wanfeng Zhou
NEW YORK, Sept 12 The dollar edged higher
against the euro on Thursday after data showed a sharp fall in
U.S. weekly jobless claims and a contraction in euro zone
But the dollar slipped versus the yen as U.S. Treasury
yields fell and some traders said that while the Federal Reserve
will likely start reducing stimulus next week, the move will be
smaller than initially thought.
Uncertainty about the timing and pace of Fed action grew
after last week's disappointing U.S. August employment report.
Thursday's U.S. jobless claims data further clouded the picture
as much of the decline appeared due to technical problems in
Analysts expect major currencies to be in a holding pattern
going into the Fed's meeting next Tuesday and Wednesday. Before
that, U.S. retail sales and consumer prices will be closely
"Unless we get a significant new piece of information, we're
going to be in this range-bound pattern, maybe with some bias
for dollar weakness, as we wait for the Fed," said Vassili
Serebriakov, FX Strategist at BNP Paribas in New York.
The euro fell 0.2 percent to $1.3277, hitting a
session low of $1.3259 after data showed U.S. initial jobless
claims fell to 292,000 in the latest week, the lowest level of
claims since 2006, confounding analysts' expectations for a mild
Euro zone industrial production fell 1.5 percent in July,
compared with a 0.1 percent increase forecast.
Against the yen, the euro lost 0.9 percent to 131.80 yen
. Against the pound, it was trading weak, near a recent
7-1/2 month low.
Sterling cut losses against the dollar and hit a
session high against the euro after Bank of England
Governor Mark Carney showed no apparent unease over rising bond
The dollar index, which measures the greenback versus
a basket of six currencies, was flat on the day at 81.552, not
far from a two-week low of 81.410 struck earlier in the session.
Markets have tempered their expectations for any aggressive
stimulus withdrawal by the Fed. That has led investors to trim
long dollar positions built on expectations the Fed will unwind
stimulus by a much larger amount.
That view was expressed in the dollar/yen pair, which
fell from a seven-week high of 100.62 yen hit on Wednesday to
99.30 yen, down 0.6 percent on the day.
"It looks like the Fed will only make a modest $10 billion
tapering next week. So investors are adjusting their positions
accordingly," said Jane Foley, senior currency analyst at
Rabobank. "The Fed will be very careful with tapering and will
probably only dip its toe."
Citi economists expect $10-15 billion of Fed tapering and no
change to the withdrawal timetable, an outcome that Steven
Englander, Citi's global head of G10 FX Strategy, said would be
neutral, or even slightly hawkish, relative to expectations.
Reflecting nervousness before the Fed meeting, euro/dollar
and dollar/yen one-week implied volatilities - a gauge of how
sharp price swings will be in the near term - shot up.
The one-week euro/dollar implied vol was trading
at around 7.85 percent, much higher than the one-month implied
vol around 7.2 percent. The one-week dollar/yen implied vols
were also trading above one-month implied vols.