* Draghi says ECB ready to inject liquidity to keep rates
* Dudley says Fed was right to maintain stimulus, cites
* Concerns over budget showdown in Washington spreading
By Ian Chua and Hideyuki Sano
SYDNEY/TOKYO, Sept 24 The euro nursed modest
losses on Tuesday after the European Central Bank said it stood
ready to do more to keep market rates down, while dovish
comments from an influential Federal Reserve official kept the
dollar on a leash.
Traders were also wary about U.S. fiscal policy amid a
political showdown in Washington that could see the government
shut down, or at the very extreme, default on its debt.
"The market is getting nervous about the U.S. debt deal.
It's not clear whether they can reach a deal easily," said
Minori Uchida, chief fx strategist at the Bank of
Tokyo-Mitsubishi UFJ in Tokyo.
The euro traded at $1.3494, having slipped 0.2
percent on Monday after ECB President Mario Draghi said the bank
was prepared to inject more liquidity to keep money-market rates
from rising to levels that could hurt the economy.
Draghi's remarks came even after closely watched surveys
showed business activity in the euro zone grew faster than
expected this month thanks to stronger new orders, latest
evidence that the economy is healing.
Some market players believe Draghi, aware that many of the
euro zone economies are still fragile, is ready to talk down the
euro if the currency rallies hard, especially beyond $1.35.
Central banks on both sides of the Atlantic are at pains to
ensure the pace of economic recovery continues, a point made
loud and clear by the Federal Reserve.
Last week, the Fed stunned markets by leaving its massive
stimulus in place, despite having allowed talk of taper to
flourish in the months leading up to the Sept. 17-18 meeting.
New York Fed President William Dudley, a well known dove and
close ally of Fed Chairman Ben Bernanke, justified the action
saying on Monday the central bank must for now continue to push
hard against threats to the economy.
Dudley cited fiscal uncertainties as Congress prepares to
hash out a deal to avoid a government shutdown and raise the
nation's debt ceiling.
His comments kept the U.S. dollar pinned down against many
currencies, leaving the dollar index hovering near a
seven-month trough plumbed last week.
Against the yen, the dollar dipped to 98.76, pulling
away from Monday's high around 99.36, while the euro eased to
133.26 yen from Monday's peak of 134.56.
David Rodriguez, strategist at DailyFX, expect the dollar to
stay in a range given there is no clear commitment from the Fed
and no timetable on when it would start to scale back stimulus.
"The fact is that Fed officials remain as data-dependent a
sever; if we see big surprises out of U.S. nonfarm payrolls data
and/or inflation reports, expect big dollar moves. In the
meantime, we think it's unlikely that the dollar breaks to fresh
lows," he wrote in a note.
Weakness in the euro and greenback benefited higher-yielding
currencies such as the Australian dollar. It rose nearly a full
U.S. cent to $0.9426 overnight and also gained ground
on the euro, which retreated as far as A$1.4267 from
a three-week peak of A$1.4485. It last stood at $0.9408.
The Aussie was further underpinned by growing optimism that
China, Australia's single biggest export market, has pulled out
of a slowdown.
A measure of China's manufacturing activity on Monday grew
at its fastest pace in six months in September, offering more
evidence that the world's second-largest economy was regaining
Trading is likely to be light on Tuesday with no major
economic data in Asia. In Europe, a survey of German business
sentiment from the Ifo think-tank will be closely watched.