FOREX-Dollar recovers from record lows as US data awaited
(Changes byline, updates prices, adds quotes)
By Gertrude Chavez-Dreyfuss
LONDON, Oct 1 (Reuters) - The dollar rose on Monday, rebounding from earlier record lows against the euro and a basket of currencies, as investors took profits on recent gains in other currencies ahead of a fresh batch of U.S. data this week.
Investors are now awaiting the Institute for Supply Management's manufacturing index at 1400 GMT for further clues on the health of the U.S. economy. The ISM's employment component may shed some light on the likely outcome of the keenly-watched non-farm payrolls report on Friday.
"A little bit of profit-taking has pulled euro/dollar lower and that's not a surprise particularly ahead of some U.S. data this week," said Niels Christensen, currency strategist at Nordea Bank.
By 1040 GMT, the euro was down 0.3 percent at $1.4232 <EUR=>, pulling back from record highs at $1.4281 hit earlier in the session, according to Reuters data. The euro has gained nearly 8 percent so far against the dollar this year.
The dollar index (.DXY: Quote, Profile, Research), a gauge of the greenback's value against a basket of six major currencies, hit a lifetime low of 77.657, before rebounding to trade at 77.959. The index lost 3.8 percent in September, more than doubling its year-to-date fall.
Despite the dollar's recovery on Monday, its outlook remained bearish, analysts say. A half percentage cut in interest rates to 4.75 percent to boost a U.S. economy weighed down by a global credit crunch and slump in the housing sector has set off a major downtrend in the dollar.
"It is difficult to find any news to support any dollar recovery. If the euro/dollar were to correct lower, it would have to come from the European side -- if for instance the ECB were to express concern that euro/dollar is too strong," said Nordea's Christensen.
FX RISK APPETITE STRONG - FOR NOW
The dollar gained 0.9 percent to 115.78 yen <JPY=>, as risk appetite stayed strong in foreign exchange. Investors putting on carry trade bets where purchases of high-yielders like the New Zealand dollar are funded with cheap borrowing like the yen.
The New Zealand dollar gained 1.4 percent against the yen <NZDJPY=2>, while the Australian dollar -- another high yielder -- scaled an 18-year peak at US$0.8926 <AUD=>, and was up 1.3 percent versus the yen. Both also got an additional boost from high commodity prices.
The euro rose to 164.95 yen <EURJPY=>, its strongest since Aug. 9.
However with fresh concerns about the health of the banking sector stoked after Swiss bank UBS said it would write down 4 billion Swiss francs due to credit woes, Michael Klawitter, currency strategist at Dresdner Kleinwort said FX risk appetite may not last.
On the data front, economists expect the U.S. ISM manufacturing index for September, due at 1400 GMT, to show a median reading of 52.6, slightly below 52.9 in August.
Also later this week, the European Central Bank will announce its monetary policy decision. A Reuters poll showed all 66 economists expect the ECB to keep rates on hold this Thursday and majority believe rates in the euro zone have peaked.
"While President (Jean-Claude) Trichet as always will refuse to pre-commit to any specific course of action, the net result of the combination of rising euro and slowing economic growth in the euro zone should keep the ECB stationary for the rest of 2007," said Boris Schlossberg, senior currency strategist at DailyFX.com.
(Additional reporting by Toni Vorobyova)