Fed meeting Tuesday is increasingly on traders’ minds By Deborah Levine and Myra P. Saefong, MarketWatch NEW YORK (MarketWatch) — The dollar headed down Monday, giving up an earlier advance, as U.S. stock futures gained ground on strong Chinese economic data and Beijing’s unexpected decision to stand pat on interest rates. The data fueled hopes of stronger global growth, supporting investors’ appetite for riskier assets like stocks and commodities and lessening demand for the relative safety of the greenback. The Japanese yen pared its gains as U.S. Treasury yields came off the highs of the day. The dollar index (DXY 79.72, -0.35, -0.43%) , a measure of the greenback’s performance against a basket of six other currencies, fell to 79.841 from 80.067 in late North American trading Friday. The euro (EURUSD 1.3315, +0.0109, +0.8254%) turned up, buying $1.2887 versus $1.3232 Friday. See more tools and data on currency trading. Against the yen, the dollar (USDYEN 83.6800, -0.2300, -0.2739%) traded at ¥83.985, compared with ¥83.91 Friday. It rose as high as ¥84.35 earlier Monday. Data showing a jump in China’s consumer prices in November came a day after the People’s Bank of China raised banks’ reserve requirements by half a percentage point. The central bank, however, did not raise rates this as some analysts had expected. See story on Chinese rates. “The current policy is a sign that currencies linked to China’s growth story will have further room to grow as China’s growth is expected to increase a 9% clip in 2011,” said strategists at Brown Brothers Harriman. The Japanese yen showed a closer correlation to U.S. bond prices, which move inversely to yields. The dollar gained last week against the yen as U.S. bond yields shot up, making them more attractive to foreign investors, especially in Japan. U.S. 10-year-note yields (UST10Y 3.36, +0.04, +1.05%) recently were at 3.36%, up 3 basis points on the day. Earlier, they had touched 3.40%. In Asian trading, the dollar strengthened as investors in that region reacted to U.S. data released Friday, ahead of the Federal Reserve’s decision on interest rates Tuesday. “At the tail end of last week, U.S. data provided further support to the growing pool of evidence indicating strengthening U.S. economic conditions,” Mitul Kotecha, head of global foreign-exchange strategy at Credit Agricole, said in a note to clients Monday. The dollar gained more than 1% against the euro and yen last week as a selloff in Treasury bonds pushed yields sharply higher, making U.S. debt more attractive to foreign investors. Read Friday’s currencies column. Overall, however, “as markets make the last stride towards year-end it appears that currencies at least are becoming increasingly resigned to trading in ranges,” said Kotecha. “Even the beleaguered [euro] has not traded far from the $1.3200 level over the last week despite significant bond-market gyrations,” he said. And “news that inflation in China came in well above expectations in November and increased prospects of a rate hike is likely to prompt a limited reaction from a lethargic market.”

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