FOREX-Dollar cheered by ISM data, but gains fleeting

* US ISM manufacturing report spurs dollar short-covering

* Dollar falls back vs yen after earlier spike

* Euro down vs dollar, euro/sterling weighs

(Recasts lead, adds quote, U.S. data, updates prices)

By Gertrude Chavez-Dreyfuss

NEW YORK, Nov 1 (BestGrowthStock) – The dollar firmed against the
euro and yen on Monday after stronger-than-expected U.S.
manufacturing data, though gains were fleeting as markets
braced for more monetary easing from the Federal Reserve this
week.

The Fed is likely to announce on Wednesday a fresh round of
quantitative easing under which the U.S. central bank would buy
bonds and essentially flood the economy with dollars in an
attempt to revitalize it. That should push Treasury yields
lower and diminish the allure of some U.S. assets, forcing
investors to seek higher returns elsewhere.

An above-forecast October reading of U.S. manufacturing
conditions from the Institute for Supply Management on Monday
did nothing to significantly change the market’s view on the
expected easing.

Most economists expect the Fed to buy $80 billion to $100
billion in assets per month, according to a Reuters poll.
Estimates of total purchases ranged from $250 billion to $2
trillion.

“The dollar is starting to rebound a little bit off the
better-than-expected ISM data. But we’re still within the
ranges we have seen the last couple of days,” said Greg
Michalowski, chief currency analyst at the New York-based
online broker FXDD.

“I think the market was expecting a weaker ISM to keep the
dollar on the defensive going into all the events this week.
But the data came in strong so traders were forced to cover
some of their short positions.”

Japanese intervention fears came to the fore again on
Monday after a spike in the dollar versus the yen following the
pair’s fall to a fresh 15-year low. That further added
uncertainty to a market already jittery about Wednesday’s Fed
decision, although trades were confined to a narrow price
range.

In midday trading, the dollar was up less than 0.1 percent
against a basket of six currencies at 77.285 (.DXY: ).

DOLLAR PULLBACK?

Some analysts said dollar short positions have become
overstretched as investors priced in aggressive Fed easing,
leaving scope for a pullback in the dollar if the Fed announces
a smaller round of purchases.

“The dollar is clearly oversold, and it’s possible we could
see a rally in the dollar index (Read more about the global trade. ) maybe up to 79 or 80. But it’s
pretty clear that we want a lower dollar to help our exports,”
said Tom Samuelson, chief investment officer at Advanced
Equities Asset Management in Scottsdale, Arizona.

The firm, a global asset allocation company, has assets
under management of $740 million, investing as well in fixed
income and commodities.

Analysts said the market remained fairly short dollars
heading into the Fed meeting but short-term players have
lightened some positions, latest CFTC data showed. [IMM/FX]

There are also significant events this week, leaving most
investors sidelined, traders said. As well as the Fed, there
are four other major policy decisions this week — in
Australia, the euro zone, UK and Japan — with key U.S. jobs
data due Friday.

The euro (EUR=EBS: ) was down 0.5 percent at $1.3879 after
climbing to $1.4012 overnight.

The euro was also weighed down by gains in the pound,
traders said, after UK data showed an above-consensus
manufacturing index. The recent strength in UK data, including
a stronger-than-expected gross domestic product reading for the
third quarter, has pushed out expectations the Bank of England
will engage in quantitative easing.

The euro was down 0.4 percent at 0.8660 (EURGBP=: ).

The dollar rose 0.4 percent to 80.68 yen (JPY=EBS: ), mostly
on the ISM data. It earlier spiked more than one yen to 81.60
yen in Asian trade.

The Australian dollar (AUD=D4: ) was up 0.3 percent at
US$0.9865, buoyed by strong data from China, the biggest buyer
of Australian commodities. [ID:nTOE6A001P].

Australia’s central bank is expected to leave rates on hold
on Tuesday following recent below-forecast inflation data, but
there is a risk of a 25 basis-point hike. [ID:nSGE69S073]

(Editing by Padraic Cassidy)

FOREX-Dollar cheered by ISM data, but gains fleeting