* Dollar index holds near two-month peak
* Solid U.S. jobs data on Friday keeps alive December
* Diverging Fed/ECB policy path expected to keep EUR/USD
By Ian Chua and Masayuki Kitano
SYDNEY/SINGAPORE, Nov 11 The dollar held near a
two-month high against a basket of major currencies on Monday,
having staged a broad rally after upbeat U.S. jobs data
bolstered the case for the Federal Reserve to scale back
stimulus as early as next month.
The dollar index eased 0.1 percent to 81.262 but
stayed within sight of a two-month high of 81.482 set on Friday
after a closely watched report showed employers added 204,000
new jobs to their payrolls last month, soundly beating forecasts
for 125,000 jobs.
The data was even more remarkable as it came in a month when
a budget standoff in Washington forced a 16-day government
shutdown, suggesting the economic recovery was on a firmer
footing than expected.
"The market has kind of re-priced the tapering expectations
with the data opening the possibility that tapering could take
place much sooner than the March consensus. So it's shifting
back to the December or January kind of time frame," said Sim
Moh Siong, FX strategist for Bank of Singapore.
"I think the dollar generally will stay supported," he
Despite that, Federal Reserve Chairman Ben Bernanke and two
other top policymakers said there is still plenty of room for
the jobless rate to fall further, suggesting continued support
for the central bank's massive stimulus programme.
"Our baseline case remains that the Fed would start tapering
in March 2014, but the solid NFP number keeps December tapering
on the table and the next November employment report will be
critical for the Fed's decision," analysts at Barclays Capital
wrote in a note to clients.
Investors reacted to the jobs numbers by driving the
benchmark 10-year yield up as far as 2.763 percent,
the highest since Sept. 20.
That in turn provided support for the dollar, which held
steady versus the yen at 99.04 yen after having jumped
around 1 percent versus the Japanese currency on Friday.
EURO UNDER PRESSURE
The euro wallowed at $1.3357, down 0.1 percent on the
day and not that far from a two-month trough of $1.3295 plumbed
last Thursday after the European Central Bank surprised the
market by cutting its main rate to a record low 0.25 percent.
ECB Executive Board member Benoit Coeure said on Saturday
the bank can trim interest rates further and provide the banking
system with liquidity.
"We continue to expect diverging monetary policy outlook to
drive EUR/USD lower in the medium term," Barclays Capital
Not helping the common currency, S&P late in Asia on Friday
downgraded France's credit rating by a notch to AA from AA-plus,
giving a thumbs-down to President Francois Hollande's efforts to
put the euro zone's second largest economy back on track.
The Australian dollar held steady at $0.9386,
struggling to gain traction after having slid to a one-month low
around $0.9352 on Friday.
The fall is sure to please the Reserve Bank of Australia,
which has repeatedly said the currency is too high compared with
The Aussie dollar failed to make the most of fresh evidence
providing further signs of stabilisation in the Chinese economy.
Data on Saturday showed China's factory output and
investment grew in October, while annual inflation quickened to
its fastest in eight months though not as high as expected.