* USD up on hawkish comments from Fed official, higher US
* Pound remains on defensive, struggles near 31-year low
* Euro extends gains after bouncing on report of ECB policy
* Comments by ECB's Nowotny, US ADP jobs report awaited for
(Adds details and quotes, updates prices)
By Shinichi Saoshiro
TOKYO, Oct 5 The dollar hovered near a two-month
high against a basket of currencies on Wednesday, lifted by
hawkish comments from a Federal Reserve official and higher U.S.
The euro also extended its bounce following a report of
potential changes to European Central Bank policy.
But the pound marked fresh, three-decade lows amid concerns
that Britain's separation from the European Union could be rocky
and have grave economic consequences.
The dollar index stood at 95.989, in sight of 96.442,
its highest since Aug. 9.
The greenback was already on a strong footing after rallying
at the start of the week on an upbeat survey of the U.S.
It got an additional lift after Richmond Federal Reserve
President Jeffrey Lacker said on Tuesday there was a strong case
for raising interest rates and as Treasury yields rose to
two-week highs in response to a surge by their euro zone
The euro rose 0.2 percent to $1.1222, extending the
bounce from the previous day when it swung widely on speculation
over ECB monetary policy.
The common currency had slid on Tuesday to a low $1.1138
against the bullish dollar before climbing back to a peak
$1.1239. It climbed along with a rise in euro zone debt yields
in response to a Bloomberg report of a ECB plan to taper its
An ECB media officer tweeted later on Tuesday, however, that
the central bank's decision-making body has not discussed
reducing the pace of its monthly bond buying.
"It remains to be seen if the report can be substantiated.
But the mood in the market appears to have shifted with the
mention of ECB tapering as it would spell an end to monetary
policy divergence," said Masashi Murata, senior currency
strategist at Brown Brothers Harriman in Tokyo.
The euro had been kept relatively weak against the dollar as
the ECB has been easing extensively while the Fed was poised to
"The ECB may now taper, the Bank of Japan appears less
aggressive about easing and the Fed won't be hiking rates every
quarter. It means currencies will be grappling to find a clear
trend going forward."
The dollar was little changed at 102.880 yen after
rising to a three-week high of 102.965 overnight, when it posted
its sixth straight day of gains versus its Japanese peer.
"The U.S. dollar should continue to outperform but after six
straight days of gains, traders should beware of a correction in
USD/JPY ahead of Friday's non-farm payrolls report," wrote Kathy
Lien, managing director of FX strategy for BK Asset Management.
Lien added a move by the dollar down to 102.50 yen would
give traders an opportunity to reload their long positions
before the U.S. jobs report.
The dollar's strength came in part from its gains against
the pound, which struggled near a 31-year trough of $1.2720
after shedding about 0.9 percent the previous day.
Many in the market worry that the British government's
stance points to a "hard Brexit," in which Britain splits
entirely from the single market in favour of retaining control
over immigration, which could drive an exodus of banks from
For immediate cues the market will look to comments due
later in the day from ECB Governing Council member Ewald
Nowotny, Minneapolis Fed President Neel Kashkari and Richmond
Fed President Lacker.
Upcoming data on Wednesday include the U.S. ADP employment
report and the Institute for Supply Management's (ISM) index of
(Editing by Shri Navaratnam and Kim Coghill)