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Fed will not rush, so dollar is vulnerable – analysts

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The Federal Reserve is likely to maintain its ultra-soft monetary policy with its June 16 decision, causing the dollar to be slightly weaker against some currencies, ING said.


“The consensus seems to be that while the Fed may hint that the discussion on the QE cut may start earlier than expected, it will be in no rush to do anything,” analysts say ING.


In this environment, they said, the dollar should be slowly selling against currencies that benefit from higher commodity prices or higher yields, which are currently only found in emerging markets. The DXY dollar index is trading up 0.2% to hit 90.20.

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The euro is likely to continue trading sideways against the dollar in the near term due to the lack of clear signals from the Federal Reserve regarding the timing of the stimulus cut, Commerzbank reported. The market will hope the Fed will clarify whether it will react to the recent acceleration in inflation at its June 16 meeting, said currency analyst at Commerzbank U-Na Park-Heger.


“However, it seems doubtful that the Fed will change its mind, as the data on the labor market have been rather moderate recently,” she adds.


Therefore, it is likely that the Fed will be too early to signal a tightening of monetary policy, she said. EUR / USD fell 0.3% to 1.2134.

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The Swiss franc’s safe haven status means the currency will weaken in the coming months as the global economy recovers from further easing of restrictions against the coronavirus, Commerzbank reported. Strong recovery in the US and Europe should be reflected in economic data in the coming months, according to currency analyst U-Na Park-Heger at Commerzbank.


“In such conditions, the mood on the financial markets should be positive, and the demand for the Swiss franc as the currency of the crisis should decrease.”


However, a depreciation of the franc against the euro will be moderate as the European Central Bank is likely to dampen any speculation about a cut in stimulus, she said. Commerzbank expects the EUR / CHF rate to rise to 1.12 by the end of the year from the current 1.0886.

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