FOREX-Dollar falls as nerves set in before Fed policy decision

* Graphic: World FX rates in 2020 https://tmsnrt.rs/2RBWI5E
* Fed meets as traders eye Treasury yields
* Optimism about economic recovery may be excessive
* Australian, New Zealand dollars resume recent rally

By Stanley White
TOKYO, June 10 (Reuters) - The dollar fell against most
currencies on Wednesday amid some speculation the U.S. Federal
Reserve could take steps to curb a recent rise in bond yields in
a policy decision later in the day.
The Australian and New Zealand dollars extended their recent
rally against the greenback as investors continue to cheer a
resumption of economic activity in both countries following the
lifting of coronavirus restrictions.
The main focus is a Fed policy meeting later on Wednesday.
While no major changes are expected, recent rises in yields have
pushed up the dollar due to increasing signs that the U.S.
economy is slowly rebounding from the health crisis shock,
though a full-fledged recovery is still distant.
Some analysts are playing down the chance the Fed will adopt
yield curve control to guide 10-year Treasury yields lower, but
uncertainty about the outcome of the Fed meeting could keep the
dollar under pressure.
"The Fed can afford to wait and see on yield curve control
because the U.S. economy has gotten past the crisis phase and
only just entered the healing phase," said Masafumi Yamamoto,
chief currency strategist at Mizuho Securities in Tokyo.
"The markets got overly optimistic and are adjusting lower,
but this is a good chance to buy the dollar on the dip."
The dollar fell to 107.54 yen JPY=EBBS on Wednesday
following a 0.6% decline in the previous session.
Against the British pound GBP=D3 , the greenback fell to
$1.2760, the lowest since March 12.
The dollar also fell slightly to 0.9495 Swiss franc
CHEF=EBBS , approaching the lowest since mid March.
The yield on benchmark 10-year Treasury notes US10YT=RJR
was little changed at 0.8271% on Wednesday. Long-term Treasury
yields fell on Tuesday and the yield curve US2US10=TWEB
flattened slightly as traders adjusted positions before the Fed
meeting.
U.S. central bankers on Wednesday will also publish their
first economic projections since the coronavirus pandemic
plunged the country into recession. Estimates are expected to signal a collapse in output this
year and near-zero interest rates for the next few years.
The euro EUR=D3 rose 0.22% to $1.1364. Against the pound,
the common currency bought 88.99 pence EURGBP= .
Concerns about progress in trade talks between Britain and
the European Union continue to hamper both the euro and the
pound.
The EU's chief Brexit negotiator, Michel Barnier, is
scheduled to speak later on Wednesday, which may yield details
that will help determine whether market sentiment will improve.
The Australian dollar AUD=D3 rose 0.5% to $0.6995,
approaching an 11-month. The New Zealand dollar NZD=D3 also
rose toward its highest since late January.
The Antipodean currencies have been on a stellar run against
the greenback due to hopes for economic recovery, prompting some
investors to book profits.
Some traders are worried about a deterioration in diplomatic
relations between Australia and China, which has capped gains in
the Aussie.
Elsewhere in Asia, the Chinese yuan CNY=CFXS rose to the
highest in a month and a half, as traders jockeyed for position
before the Fed meeting.