* Surprisingly strong euro zone manufacturing data boosts
* Uncertainty over Fed policy keeps dollar shackled
* Aussie, near 3-month low vs USD, braces for event-packed
By Hideyuki Sano
TOKYO, Dec 17 The euro held the upper hand on
Tuesday after surprisingly strong euro zone manufacturing data,
while uncertainty over when the Federal Reserve would start to
trim its economic stimulus programme kept the dollar on the
The euro traded at $1.3762, maintaining its slim
gains on Monday and not far from a two-year high of $1.3811
reached last week.
The common currency was broadly firm, holding near a
four-week high against sterling hit on Monday and staying within
reach of five-year peak on the yen and 3 1/2-year high against
the Australian dollar.
It last traded at 0.8443 pound, 114.80 yen
and A$1.5388 respectively.
The euro gained traction after a report on Monday showed
German manufacturing activity and the flash Eurozone Composite
Purchasing Managers' Index both beat forecasts in December.
That did not come without misgivings, however, as activity
in France dropped to a seven-month low.
Also taking some shine out of the euro, ECB President Mario
Draghi affirmed on Monday that interest rates in the region will
stay low, if not lower, for longer, highlighting the
still-fragile state of the euro zone economy.
Data in the United States continued to point to an economy
building good momentum, with industrial production posting its
biggest increase in a year in November, and finally pushing
industrial output above its pre-recession peak.
That is another milestone that could push the Federal
Reserve to reduce its stimulus soon, though markets are still
not convinced if that's going to happen at the upcoming meeting
this week, or some time early next year.
Even if the Fed does taper its bond buying, it could signal
it plans to keep rates low for a longer period, complicating the
dollar's outlook further.
Uncertainty over the Fed's policy outlook kept the dollar
index standing at 80.11, not far from six-week low of
Against the yen, the dollar traded at 103.05 yen,
having slipped from five-year high of 103.925 yen hit on Friday.
While many traders looked to the outcome of the Fed's
two-day meeting starting on Tuesday, the Australian dollar will
also garner some attention in Asia as markets brace for the
minutes of the Reserve bank of Australia's policy meeting later.
The Australian dollar fetched $0.8941, near a
3-month low of $0.8909 set on Friday. Against the yen, it stood
at 92.19 yen, holding above an important support
around 91.80, its 100-day moving average and Dec. 4 low.
The Aussie has been under pressure for months from the
central bank's jawboning but some analysts suspect the impact of
verbal intervention may start to wane.
"The RBA will try to talk down the Aussie and I guess there
will be Pavlovian response to sell the Aussie on the headline.
But it's getting harder for the RBA to avoid its verbal
intervention seen as a bluff when there is limited chance of
rate cut and Aussie-selling intervention," said Masafumi
Yamamoto, strategist at Praevidentia Strategy.