FOREX-Dollar treads water as traders wait for Fed policy meeting

* 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 dollar rally takes a breather

By Stanley White
TOKYO, June 10 (Reuters) - The dollar nursed losses against
most currencies on Wednesday amid some speculation the U.S.
Federal Reserve could take steps to curb a recent rise in bond
yields at its policy meeting.
The Australian and New Zealand dollars pulled back slightly
against the greenback but sentiment remained positive as
economic activity resumes 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 the U.S. economy is
stabilising, but a full-fledged recovery from the coronavirus
outbreak 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 was little changed at 107.72 yen JPY=EBS on
Wednesday in Asia following a 0.6% decline in the previous
session.
Against the British pound GBP=D3 , the greenback traded at
$1.2732, close to a three-month low.
The dollar bought 0.9512 Swiss franc CHF=EBS on Wednesday
in Asia after falling 0.7% on Tuesday.
The yield on benchmark 10-year Treasury notes US10YT=RR
was little changed at 0.8270% 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 set
off a recession in February. Estimates are expected to signal a collapse in output this
year and near-zero interest rates for the next few years.
The Australian dollar AUD=D3 pulled back from an 11-month
high to trade at $0.6958, while the New Zealand dollar NZD=D3
fell from its strongest level since late January and settled at
$0.6961.
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 also weighed on
the Aussie.
Elsewhere in Asia, the Chinese yuan CNY=CFXS and the
Korean won KRW= drifted higher against the dollar, but trading
was subdued overall as investors avoided big moves before the
Fed's meeting.
The euro EUR=D3 traded at $1.1340. Against the pound, the
common currency bought 89.10 pence EURGBP= , on course for a
second day of gains.
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.