Most currencies are higher versus the dollar to start the trading week although the dollar index is down a mere seven basis points to stand at 75.53. There are several contrary influences weighing on near-term direction, yet none seem persuasive enough to create a breakout from the recent range. With U.S. growth data due on later in the week the stakes were raised by Monday's strong 2.9% GDP reading from South Korea - a whole percentage point better than was expected. This reminder that the Asian and pacific economies are snapping back fast and arguably bodes badly for the dollar. Will a strong U.S. report card hinder or bolster it, we wonder?

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The Wall Street Journal dedicated a speculative column this weekend to the view that at next week's FOMC meeting the committee will put forth the issue of how and when to announce the issue of raising interest rates to the world. It makes sense since other central banks around the world are having to deal with the subject, yet some members have recently indicated that given the spare capacity and rising level of unemployment, there really is no rush to jump-start the monetary engine. However, the yield curve is taking its cue from the article and is becoming steeper as back-month Eurodollar futures weaken.

It does not seem likely to us that the FOMC will really want to address a reversion to restrictive monetary policy any time soon if the rationale is purely to support the ailing dollar. By doing so, the Fed could easily create far bigger problems by unnecessarily forcing 10-year yields higher having spent months in talking and dragging them down in order to revive loan demand.

The WSJ article is perhaps preventing further erosion of the dollar today, yet it's not really creating the greenback room to advance independently. The euro earlier reached a fresh 12-month high at $1.5063 after China's Financial News, a journal associated to the central bank, opined that the country should find more room among its vast international reserves for the Japanese yen and the euro, while maintaining the largest position in U.S. dollars. So the article rekindled the prospects for further dollar displacement, but doesn't go far enough in terms of being the type of news that fans the dollar-abandonment theme.

Accompanying the strong growth reading in South Korea today was news that during September China increased its imports of refined copper. This was the first gain in a quarter and argues for ongoing regional economic rebound. The news lifted metals price around the world as an anti-dollar hedge.

Some observers are starting to question last week's dire GDP contraction in the U.K., which helped reverse the fortunes of the pound. Today the pound has recouped some losses to $1.6378 and one euro purchases 91.71 pennies. Bank of England policymaker, David Miles in an interview with the Scottish Herald said that he expects growth of 3% soon from the U.K. This would level the playing fields somewhat. It seems odd that Britain is completely missing out on a growth rebound especially with confidence continuing to rise. According to a KPMG survey, executives reporting 'good' or 'very good' responses to a recent confidence survey jumped from 9 to 19%.

Andrew Wilkinson