* Dollar falls to more than 8 month low versus FX basket
* Euro nears 2013 peak against greenback
* Fading expectations of Fed tapering this year hurts dollar
* Tuesday's U.S. payroll data is next focus
NEW YORK, Oct 18 The dollar slid to
eight-and-a-half-month lows against the euro and a currency
basket on Friday on expectations the U.S. Federal Reserve may
delay scaling back its monetary stimulus following this month's
political battles over the budget.
Analysts said concerns about the negative impact on the U.S.
economy and the likelihood the Fed would leave its bond-buying
programme intact until well into next year would weigh on the
dollar, leaving the euro the potential to rise towards $1.40.
"The real economy has been negatively impacted by the
government shutdown and uncertainty of the debt crisis, all of
which pushes out eventual Fed policy normalization which is bad
for the dollar," said Omer Esiner, chief market analyst at
Commonwealth Foreign Exchange in Washington D.C.
"We may get a bounce (in the dollar) as Europe closes on
some profit taking and position squaring ahead of the weekend
and Tuesday's nonfarm payrolls."
The dollar index, which measures the dollar's value
against a basket of currencies, fell to 79.478, its lowest since
early February. It last traded at 79.649.
The euro rose to $1.3703 against the dollar, its
highest since early February when it touched its 2013 peak of
$1.3711. It was last at $1.3676, little changed on the day and
is up 1 percent for the week, its best week since September 20.
A little over a month ago, analysts were convinced the Fed
was ready to embark on the first step of reining in five years
of ultra-loose monetary policy for the world's biggest economy.
But the Fed unexpectedly left policy unchanged in September.
This was followed by a partial 16-day halt in U.S. government
spending in October, then a deal over the debt ceiling which
leaves scope for further wrangling over the budget early next
"Expectations for tapering have been pushed out and that
will be negative for the dollar ... The trend is definitely
pointing towards $1.40 for the euro," said Niels Christensen,
currency strategist at Nordea in Copenhagen.
Analysts at Citi also said the euro could move closer to
$1.40 in the near term due to the expected delay in the Fed
reducing stimulus. They expect the euro to be bought "as a safe
haven and reserve proxy for the dollar".
The dollar index was down around 1 percent on the week and
on track for its biggest weekly decline since the week of
September 20, which came after the surprise Fed decision.
"The market will come round to the idea that tapering is off
the agenda until the back end of Q1 or even Q2, and that is a
powerful dollar negative," said Paul Robson, currency strategist
at RBS in London.
The deal reached on Wednesday funds the U.S. government only
until Jan. 15 and raises the borrowing limit through to Feb. 7.
The first wave of U.S. data released on Thursday after the
government returned to work was fairly upbeat. But the main
focus is on the September payrolls report, which the Labor
department said will be published on Tuesday.
The dollar also struggled against the yen after a fall in
U.S. bond yields undermined the U.S. currency's allure.
It was down 0.1 percent on the day at 97.75 yen,
below a three-week high of 99 yen reached on Thursday.
But one-month dollar/yen implied volatilities fell to a
nine-month low, which analysts said reflected
expectations that the dollar was likely to remain within its
recent trading range between 96.50 and 99 yen.
The Australian dollar rose to a four-month high, helped by
data showing China's annual economic growth quickened to 7.8
percent in the third quarter. It last traded at
0.9651, up 0.2 percent.