The dollar will need a firm statement form the Federal Reserve to make any significant headway following the Fed interest rate decision

The dollar was unable to re-test Euro support levels beyond 1.55 on Tuesday and had a generally weaker tone with lows around 1.5620 following the US data. The US data releases provided no support to the US currency as consumer confidence fell to 50.4 in June from a revised 58.1 the previous month. This was the 5th lowest reading of all time and will reinforce fears over the consumer spending trends.

Inflation fears were also significant with the 1-year inflation expectations index at 7.7% within the confidence data. The combination of growth and inflation unease will reinforce the difficulties faced by the Federal Reserve. Assuming the Fed leaves interest rates on hold at 2.0% at the FOMC meeting on Wednesday, the statement will be watched extremely closely and will be very important for near-term market direction. There is also the possibility of dissenting calls for higher rates

The dollar will be vulnerable to renewed selling pressure if the Fed concentrates on growth risks while a greater emphasis on the need to control inflation and a tightening bias would provide support. Any references to the need to curb dollar weakness will also be watched very closely and would offer dollar support.