MW: Dollar shows modest strength ahead of FOMC decision
By Myra P. Saefong, MarketWatch
TOKYO (MarketWatch) -- The dollar was slightly stronger against the Japanese yen and the euro Tuesday in Asian afternoon trading, recouping some of the losses it suffered on Monday as traders weighed the greenback's potential against a heavy news backdrop and ahead of a monetary policy decision by the U.S. Federal Reserve.
"The consolidation in the forex markets reflects the lack of U.S. economic data and hesitancy of currency traders to add to their long dollar positions ahead of the Federal Reserve's monetary policy announcement on Wednesday," said Kathy Lien, director of currency research, in a note to clients.
In recent action, the dollar showed modest strength, buying 88.82 yen, up from 88.65 yen late Monday in North American trading, while the euro changed hands at $1.4636, down from $1.4653.
The dollar index (DXY 76.40, +0.06, +0.08%) , which tracks the greenback against a trade-weighted basket of six major counterparts, was at 76.434, up from 76.351 late Monday.
The two-day Federal Open Market Committee ending on Wednesday may have a negative effect on the dollar, as traders worried they'll hear more dovish language from the central bank's policy committee. See story previewing Fed meeting.
Meanwhile, news that Dubai received help to pay part of its billions in debt helped alleviate concerns over potential growth in sovereign debt defaults, contributing to weakness in the dollar on Monday. See Monday's Currencies column.
"The price action in the currency and equity markets suggests that investor sentiment has improved," said Lien.
"Considering the magnitude of the news that Citigroup (C 3.70, -0.25, -6.33%) plans to repay TARP funds, Abu Dhabi's $10 billion support to Dubai World and Exxon Mobil's (XOM 69.69, -3.14, -4.31%) ... stock deal to acquire XTO Energy (XTO 47.86, +6.37, +15.35%) , we would have expected a more significant reaction in the financial markets," she said.
But U.S. stocks on Monday, ended the day virtually unchanged, while the dollar gave back a small portion of its recent gains, she said.
