* Dollar selloff loses steam, index still near 7-month lows
* German election outcome this weekend a key euro focus
* Dollar climbs to one week high vs yen
NEW YORK, Sept 20 The dollar edged further from
a seven-month low against a currency basket on Friday yet
investors made few big bets given the ongoing uncertainty over
the Fed and looming Congressional battles over funding the
government and U.S. borrowings.
The dollar touched a one-week high against the yen after St.
Louis Fed President James Bullard said policy changes were
possible at the Fed's October meeting depending on U.S. economic
But many investors are more cautious about Fed speeches
given the market's shock that the Fed did not begin to slow its
stimulus at this week's meeting, something they believed would
Although the dollar saw marginal broad gains, analysts said
it was likely to remain weighed down near term by the lack of
clarity from the Fed after the U.S. central bank unexpectedly
maintained the pace of its bond-buying stimulus
Added to that uncertainty is a looming battle between rival
U.S. political parties over raising the U.S. debt ceiling to
allow the government to keep borrowing money to pay its bills.
That decision is expected to come to a head later this year.
Even closer is a congressional battle over the Federal
budget to avoid shutting down the government.
"As Congress returns to work in Washington DC, the two
parties show no willingness to compromise on the key issues of
budget deficit and debt ceiling limits," said Boris Schlossberg,
managing director of FX strategy at BK Asset Management in New
York. "With (the Repubilicans" sensing that President Obama has
been weakened by his handling of the Syria crisis, their
intransigence may only harden as the days go by, with the
possibility that US could face another government shutdown."
The dollar index was last up 0.1 percent at 80.454, a
little above Wednesday's seven-month trough of 80.060.
The euro was flat at $1.3522, having hit a 7-1/2
month high on Thursday. A large options expiry was reported at
Some analysts, however, felt the dollar's longer-term
uptrend was still intact.
"The main takeaway from Wednesday is that Fed tapering is
delayed, not that it has been removed. At some point the Fed
will move to taper and we will see U.S. yields move
a bit higher and support the dollar," said Sara Yates, global
currency strategist at JP Morgan Private Bank in London
Barclays Capital strategists expect the Fed to start
tapering in December 2013 and raise rates in June 2015.
Analysts said the euro could see a marginal impact from
Germany's general election on Sunday.
Chancellor Angela Merkel is seeking a third term but there
are doubts she will be able to maintain her centre-right
coalition, which could complicate her euro zone policy.
The euro was up 0.1 percent at 134.62 yen, not far
from the near four-year high of 134.94 yen hit on Thursday.
The dollar was up 0.1 percent at 99.55 yen. Options
traders cited renewed demand for dollar upside strikes.
One-month risk reversals showed a slight bias
toward dollar calls or bets the greenback will gain versus the
yen, against a bias in favour of dollar puts just before the Fed
The yen sold off broadly on Thursday as risky assets rallied
after the Fed's decision. Investors tend to sell the yen in
favor of higher-yielding assets when risk appetite is strong.
The Japanese currency stayed close to lows hit on Thursday,
including a three-month low versus the Australian dollar, its
weakest in nearly four years against the euro and a 23-year
trough versus the Swiss franc.