* Strong job gains spark recovery optimism
* Pimco FX manager says euro may struggle
* But Mellon Capital reverses bearish view on euro
* Euro/dollar sentiment in options market darkens
(Adds comment, updates prices)
By Wanfeng Zhou
NEW YORK, Nov 5 (Reuters) - The dollar could be near a
bottom versus the euro and yen after strong jobs data raised confidence in the U.S. economy, but the greenback is set to remain
weak against high-yielding and emerging market currencies.
The dollar soared on Friday after data showed U.S.
employers added 151,000 jobs in October, blowing past
expectations of a 60,000 rise and marking the fastest pace of
hiring since April. For details, see []
The report followed two days after the Federal Reserve
committed to inject $600 billion to boost the flagging recovery
and left some investors open to the possibility the dollar
may have carved a bottom against the euro and yen, despite the
prospect of more monetary easing.
Any signs the U.S. economy is gaining momentum could prompt
investors to close out some of their massive short dollar bets
accumulated in recent weeks, lifting the greenback.
Data from the Commodity Futures Trading Commission on
Friday showed the value of the dollar's net short position
stood at $24.53 billion in the week ended Nov. 2, slightly up
from a net short of $23.11 billion the previous week.
[]
"It is very unclear if the U.S. dollar will sustain this
weakness against the yen or euro," said Michael Hasenstab,
portfolio manager of Templeton Global Bond Fund and co-director
of Franklin Templeton Fixed Income Group's international bond
department.
"It is important to note that within the G-3 economies the
U.S. is not alone in its easy monetary policy," he added. "The
European Central Bank continues to provide large amounts of
liquidity within its financial system to address bank and
sovereign credit vulnerabilities, and Japan continues to embark
on equally aggressive monetary easing."
Franklin Templeton Fixed Income Group has more than $280
billion in assets under management.
In late trading, the euro was down 1.2 percent at $1.4031
<EUR=EBS>, a day after hitting a 9-1/2-month high of $1.4283 on
trading platform EBS.
"We're having indications that the economy is turning in
the right direction. The U.S. is regaining some traction," said
Thomas Kressin, senior vice president and lead portfolio
manager of Pimco's Global Investor Series FX Strategy Fund in
Munich, Germany.
The currency fund has assets under management of about 100
million euros (roughly $140 million).
DIVIDED VIEWS
Concerns about the euro have also risen after Ireland's
austerity budget prompted a widening in peripheral euro zone
bond spreads. []
Pimco's Kressin said "it's just a matter of time before the
market refocuses on the domestic issues in the region."
Investors in the options markets also turned increasingly
bearish on the euro. The euro/dollar risk reversal, a barometer
of currency sentiment, has indicated a growing negative view on
euro/dollar and the euro's "put" bias has deepened. On Friday,
euro/dollar risk reversals traded at -1.5 <EUR1MRR=GFI>, with a
bias to euro puts, down from about -0.55 in mid-October.
But Jonathan Xiong, director and global investment
strategist at Mellon Capital Management, said his firm recently
reversed its bearish view on the euro.
"We're now fairly bullish on the euro. It's actually one of
our largest overweight positions," he said. "The U.S. is
heading down a very inflationary path. But in the euro zone,
they're holding up the currency value fairly well because
they're controlling inflation."
Xiong is part of a team that oversees $28.6 billion in
assets in San Francisco.
The dollar rose 0.7 percent against the yen to 81.31
<JPY=EBS>. The Bank of Japan concluded a policy review without
easing further. See []
While the dollar's fortunes may improve somewhat versus the
euro and yen, analysts expect to see it continue to weaken
versus emerging market and high-yielding currencies such as the
Australian dollar.
"Continued and aggressive quantitative easing by the U.S.
is one of the factors that will likely lead to a further fall
of the U.S. dollar versus the currencies of countries that are
not pursuing such lax monetary policy, such as those in
non-Japan Asia," Hasenstab said.
(Additional reporting by Gertrude Chavez-Dreyfuss; Editing by
)
