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Dollar drops ahead of US Fed meeting

The dollar dropped against major currencies as investors anticipated a US Federal Reserve policy decision that could shed light on a timeframe for raising benchmark interest rates.

NEW YORK: The dollar dropped against major currencies as investors anticipated a US Federal Reserve policy decision on Wednesday that could shed light on a timeframe for raising benchmark interest rates.

Federal Reserve data showed Monday US industrial production grew 0.6 per cent in May, slightly better than the 0.5 per cent expected by analysts.

Christopher Vecchio, currency analyst at DailyFX, said that while US economic data has improved in the second quarter, "the degree to which the data has rebounded is disappointing."

Vecchio said the dollar "really needs the upcoming June Federal Reserve policy meeting this week to stand and deliver."

Analysts expect the Fed to cut another US$10 billion from its stimulus program, while keeping benchmark interest rates near zero.

But markets will scrutinize the Fed's policy statement and Chair Janet Yellen's press conference for clues on when the Fed could lift rates.

Kathy Lien, managing director at BK Asset Management, said the Fed could tweak its forecasts for the year to trim its unemployment projection and raise its estimate for inflation.

If that happens, "Janet Yellen will need to provide an explanation that convinces the market (the Fed) hasn't gotten any closer to tightening," Lien said. "If she fails, the US dollar and Treasury yields will rise."

Lien said other economic events closely watched by currency markets this week include the release of Bank of England meeting minutes and a policy announcement by the Swiss National Bank that offers a small chance of an interest rate increase.

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