Dollar steady, but seen vulnerable

Dollar steady, but seen vulnerable

Dollar drops as Fed’s taper policy remains unclear

Boris Schlossberg, BK Asset Management, and Sharon Stark, D.A. Davidson & Co., discuss what’s driving the U.S. dollar weaker and weigh in on how the Fed’s tapering policy is likely to impact the fixed income space.

The Fed has two policy meetings scheduled this year, one on Oct. 29-30 and the other on Dec. 17-18.

A majority of market players now expect the Fed will begin reducing stimulus next year, though some analysts believe tapering of its bond-buying program is still possible in December.

Expectations of a delay in reducing the Fed’s stimulus is likely to strengthen unless a run of upcoming U.S. data shows that the economy somehow gained momentum despite the disruption caused by the government shutdown.

(Read more: Why the shutdown could mean no tapering this year)

Traders are now looking to September U.S. payrolls due on Tuesday, with the market forecasting a jobs gain of 180,000, although the data will shed little light on the impact of the policy paralysis in Washington.

The euro fetched $ 1.3678, down 0.1 percent on the day. The euro had hit an eight-month high of $ 1.3704 on Friday on trading platform EBS, almost touching this year’s peak of $ 1.3711.

While the euro is likely to stay firm, the speed of its rise could slow since speculators have already piled up bullish bets on the euro, said Mitul Kotecha, head of global foreign exchange strategy for Credit Agricole in Hong Kong.

“I think that just might frustrate the ability to increase long positions again in euros,” Kotecha said.

Data on currency futures positions on the Chicago Mercantile Exchange shows that speculators had increased their net long position in the euro to 65,844 contracts in the week to Sept. 24, the highest since May 2011.

Against the yen, the euro edged up 0.1 percent to 133.99 yen, hovering near a four-year peak of 134.95 yen set in September.

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