* Strong ISM data helps to lift dollar off 8-month low
* Dollar seen under pressure given US political deadlock
* Euro helped by hopes Italy's govt survive confidence
* Eyes on ECB as investors expect LTRO later this year
By Hideyuki Sano
TOKYO, Oct 2 Robust U.S. manufacturing data kept
the dollar off eight-month lows against a basket of currencies,
despite concerns over how long the partial U.S. government
shutdown might last while lawmakers search for a compromise deal
on the budget.
Some traders expect more market volatility ahead, with no
signs in sight of an end to Washington's political deadlock,
though markets appeared hopeful the shutdown would be
"It's probably just calm before the storm. It seems like
there will be no solution in the near-term," said a currency
trader at a Western bank in Tokyo. "To me, the markets are
becoming a bit complacent about it."
The dollar index, which sank to a near eight-month
low of 79.864 on Tuesday on concerns about the shutdown, stood
at 80.199, up slightly from later U.S. levels.
Helping the dollar recover was data on Tuesday that showed
U.S. manufacturing activity expanded at its fastest pace in
almost 2-1/2 years and that firms added the most workers in 15
Yet many market players see a bumpy road ahead for the
dollar, as negotiations between congressional Republicans and
President Barack Obama over the budget and lifting the debt
ceiling are expected to diffult and possibly prolonged.
"Because of the shutdown, the government is spending less
and it may not run out of money by Oct 17. So this issue could
possibly drag on for nearly a month. I expect the dollar to stay
under pressure," said Minori Uchida, chief currency strategist
at the Bank of Tokyo-Mitsubishi UFJ.
The government shutdown is complicating the picture for
markets as it has disrupted the release of economic data at a
time when markets are looking for clues to when the Federal
Reserve will scale back its stimulus.
The U.S. Bureau of Labor Statistics, which was scheduled to
publish the closely watched non-farm payrolls report on Friday,
said it would not issue anything until government operations
Unsurprisingly, investors are reluctant to take big
positions, and the thin trading led to volatility, as seen in
the euro earlier.
The euro changed hands at $1.3523, virtually flat on
the day, having hit an 8-month high of the previous day to
breaking out of a range roughly between $1.3462 and $1.3569 that
had held since Sept. 19.
The common currency drew support from hopes Italian Prime
Minister Enrico Letta may survive a confidence vote later on
Senior party figures in Silvio Berlusconi's fractious
centre-right movement urged Italian lawmakers to defy the
billionaire media tycoon and back Letta, bringing Berlusconi's
party closer to breaking apart.
Another key focus for the euro will be the European Central
Bank's policy meeting on Wednesday, with analysts expecting the
central bank to offer a ultra-cheap funds possibly by the
year-end, though few expect it this week.
The dollar was also soft against the yen, slipping 0.2
percent to 97.79 yen.
Against the safe-haven Swiss franc, the dollar hit a near
two-year low of 0.89925 franc on Tuesday and last stood at