FOREX-Dollar lifted by data as Fed takes centre stage

* Dollar/yen extends gains, euro/dollar flat

* All eyes on Fed’s policy meeting outcome

* RBA due at 0330 GMT, with market leaning against a hike

By Hideyuki Sano

TOKYO, Nov 2 (BestGrowthStock) – The dollar extended tenuous
overnight gains on Tuesday after surprisingly strong U.S.
manufacturing data prompted more short-covering but rises were
seen limited ahead of the Federal Reserve’s policy meeting.

The Fed is widely expected to announce a second round of
monetary easing on Wednesday, with markets generally priced for
the central bank to commit to buying at least $500 billion in
Treasury debt over the coming months to spur a flagging economy.

Much uncertainty surrounds the scope and pace of bond
purchases, however, leaving the dollar vulnerable to choppy moves
in prevailing ranges.

“If the Fed’s purchase is smaller than $500 billion, there
will be more dollar buying in the near term, though I suspect the
dollar will remain under pressure on expectations that the Fed
will eventually expand its asset purchases,” said a trader at a
U.S. bank.

Data on Monday showed surprisingly strong growth last month
in the U.S. manufacturing sector.

Alan Ruskin, global head of G10 currency strategy at Deutsche
Bank, said it would provide fuel for Fed hawks who are dubious
about more easing and “will tend to add to expectations that the
Fed will want maximum flexibility to turn off the printing press”
should strong economic data warrant it.

The dollar rose to 80.71 yen (JPY=: ), up about 0.3 percent
from late U.S. levels, though it remains within sight of the
record low of 79.75 yen set in 1995.

“The market is turning cautious ahead of the Fed’s meeting.
As the market position has been overwhelmingly short in the
dollar, the psychology at work here is that you should unwind
your position,” said a trader at a Japanese bank.

Japanese investors and importers are also said to be bidding
the dollar, viewing its current level near record low as suitable
for bargain-hunting.

Markets were keeping a wary eye on the currency pair, with
the risk of Japanese intervention to weaken the yen expected to
mount if the dollar slips below 80 yen.

The U.S. congressional election on Tuesday is unlikely to
have any immediate impact on currencies, analysts said.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Multimedia report on runup to the Fed meeting:

http://link.reuters.com/pyb23q
Top News-U.S. elections: http://link.reuters.com/fyq86p
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>

EURO IN TRIANGLE

The euro, which again failed to convincingly break above
$1.4000 overnight, retreated to $1.3890 (EUR=: ), flat on the day.

Some traders cited simmering concerns on euro zone countries’
debt problems as weighing on the euro after the Irish bond yield
jumped almost 30 basis points on Monday, bringing its spread over
German bonds to a euro lifetime high. [GVD/EUR]

Still, with its moderate triangle holding pattern since
mid-October firmly in place, the lower end of the triangle around
$1.3750-70 is seen as a support and a good entry point for those
betting on a break above the triangle after the Fed meeting.

The euro fetched 112.10 yen (EURJPY=R: ), up 0.3 percent on the
day but not far from a five-week low of 111.53 yen hit on Friday.

The Australian dollar moved little from late U.S. levels at
US$0.9882 (AUD=D4: ) ahead of a policy announcement at 0330 GMT by
the Reserve Bank of Australia. It hit a post-float high of
US$1.0004 on Oct. 15.

In contrast with the Fed, the Australian central bank is
deciding whether to lift interest rates to dampen the risk of
price pressures building up due in part to an export boom.

While official data showing tame inflation last week has
prompted markets to put chances of a hike in the 4.5 percent cash
rate on Tuesday at a slim 27 percent no one is ruling out
entirely the chance of a move.

Should the RBA raise rates and signal more tightening to
come, the Australian dollar could retest parity against the
greenback.

A decision to keep rates unchanged would probably see only
limited declines for the Aussie, as attention turns to the risk
of a rate hike at the December meeting.

The Australian dollar “has proven bullet-proof, and strong
Australian and Chinese PMIs suggest that dip-buying on ‘no move’
is what everyone wants to do,” said Kit Juckes, an analyst at
Societe Generale.
(Additional reporting by Ian Chua and Reuters FX analyst Krishna
Kumar in Sydney, and Masayuki Kitano in Tokyo; Editing by Michael
Watson)

FOREX-Dollar lifted by data as Fed takes centre stage