* Euro fails to hold early gains after German election
* NY Fed Dudley says central bank must push hard against
threats to U.S. recovery
* Euro zone PMIs improve, but German factory PMI dips
* Aussie rises as China manufacturing growth picks up
By Julie Haviv
NEW YORK, Sept 23 The dollar slumped for a
second straight session against the yen on Monday as an
influential Federal Reserve policymaker defended the U.S.
central bank's decision last week to continue its easy money
William Dudley, president of the Federal Reserve Bank of New
York, said that the timeline that Fed Chairman Ben Bernanke
articulated in June for scaling back the central bank's
stimulus measures is "still very much intact."
In a strong defense of the Fed's shock move last week to
keep buying bonds, New York Fed President William Dudley said
fiscal uncertainties "loom very large" as Congress prepares to
hash out a deal to avoid a government shutdown and raise the
nation's debt ceiling.
He also noted that Bernanke did not specify that the first
reduction in bond buying would come at the Fed's September
"The fact is that Fed officials remain as data-dependent as
ever; if we see big surprises out of U.S. nonfarm payrolls data
and/or CPI inflation reports, expect big dollar moves," said
David Rodriguez, quantitative strategist at DailyFX in New York.
"In the meantime, we think it's unlikely that the dollar
breaks to fresh lows," he said.
In afternoon trade, the dollar was down 0.4 percent to 98.86
yen. The dollar was flat against a basket of currencies
at 80.410, holding above a seven-month low of 80.060 set
last week after the Fed kept the pace of its bond-buying
Europe's common currency, meanwhile, hit session lows
against the dollar and yen after European Central Bank President
Mario Draghi told the European Parliament that the ECB is ready
to offer banks more long-term loans to keep money-market
interest rates from rising to levels that could push inflation
He also said euro zone interest rates would remain at
current or even lower levels for some time.
Draghi's remarks extended earlier losses stemming from
worries about how long it will take Angela Merkel to form a
coalition after her party's victory in Sunday's German election.
"With euro at $1.35, the pressure on the ECB to be as dovish
as possible is really accelerating," said Boris Schlossberg,
managing director at BK Asset Management in New York.
"The unintended consequences of the Federal Reserve's
no-taper move has come at the worst possible time when German
manufacturing exports are beginning to slow. So I think monetary
officials in Europe will do everything possible to try to dampen
the rise in the euro."
The euro was last down 0.2 percent at $1.3502,
staying below chart resistance at last week's 7-1/2-month high
of $1.3569. It fell 0.6 percent versus the yen, to 133.54
The outcome of Germany's election drove initial weakness in
the euro. Merkel's conservatives fell short of the votes needed
to rule on their own and may have to convince leftist rivals to
join them in government.
Data showing above-forecast euro zone private sector
business activity this month gave the single currency only a
slight lift. Putting pressure on the euro were numbers showing
that German manufacturing activity growth unexpectedly slowed,
according to Markit purchasing managers' index data.
Tuesday's German Ifo sentiment data is likely to be
Analysts at UBS, however, said it "seems unlikely" the Fed
would choose to act so soon after an unchanged policy decision.
They said last week's Fed decision would keep the dollar
weak for one quarter before its longer-term uptrend resumed and
revised up their one- and three-month forecasts for euro/dollar
to $1.37 and $1.35, from $1.30 and $1.28 previously.
The growth-linked Australian dollar was up 0.5
percent at US$0.9444, after data showing China's factory sector
growth accelerated in September.