WSJ:WORLD FOREX: Dollar Struggles Ahead Of Fed Meeting
-- Dollar weakness prevails as traders remain cautious ahead of FOMC decision Wednesday
-- Traders shrug off Italy debt downgrade
-- Decent Greek T-Bill auction, better than expected German survey data help euro
By Jessica Mead
Of DOW JONES NEWSWIRES
LONDON (Dow Jones)--The dollar slid against other major currencies in European trading Tuesday as an upcoming Federal Reserve policy decision gave the euro some breathing space and allowed investors to shrug off a raft of negative euro-zone news.
Investors are preparing themselves for further stimulus from the Federal Open Market Committee Wednesday, which may weigh heavily on the greenback, and are wary of heading into the FOMC meeting overly positive on the dollar.
"The currency moves we are seeing are position-driven. Those currencies that have been hit hardest will recover the most today," said Ian Stannard, senior currency strategist at Morgan Stanley in London.
Stannard said this partly explained sharp rallies in the Australian dollar and the pound, two currencies which have suffered in the past week or so.
Such positioning for the Federal Reserve meeting also allowed traders to shrug off an overnight debt downgrade of Italy by Standard & Poor's Corp. and news that the Bank of China Ltd. (3988.HK) had suspended trading of foreign exchange swaps with several European banks, including BNP Paribas (BNP.FR) and UBS AG (UBS).
But there was also some mildly supportive news for the single currency.
A decent Greek T-Bill auction helped to quell investors' fears about an imminent Greek default while a survey showed German economic expectations deteriorated by less than expected.
Elsewhere, Japanese Prime Minister Yoshihiko Noda told Dow Jones Newswires that Tokyo is open to buying more bonds issued by a European bailout fund to alleviate concerns over the sovereign debt crisis in Europe.
"To stabilize the European financial markets and the economy, Japan needs to make a certain contribution going forward, including purchases of EFSF bonds," Noda said.
Noda also warned that Japan remains ready to intervene in the currency market if the yen's moves became excessive.
Looking ahead, traders are likely to focus on U.S. housing data at 1230 GMT, which is expected to reveal that housing starts declined in August by 2.3% on the month. Greece is also scheduled to resume talks with the troika of the European Union, the International Monetary Fund and the European Central Bank at around 1700 GMT.
At 1043 GMT, the euro was trading at $1.3692 against the dollar, compared with $1.3685 late Monday in New York, according to trading system EBS. The dollar was at Y76.54 against the yen, compared with Y76.59, while the euro was at Y104.78 compared with Y104.89. Meanwhile, the pound was trading at $1.5706 against the dollar, compared with $1.5699 late Monday in New York.
The ICE Dollar Index, which tracks the dollar against a basket of currencies, was at 77.046 compared with 76.599 late Monday in New York.
