Dollar nurses losses after Fed refrains from rate hike

[TOKYO] The dollar took back some lost ground in Asian trading on Friday after skidding to three-week lows against the euro and a basket of currencies after the Federal Reserve held interest rates steady and cut its long-term US growth outlook.

Opinions had been divided over whether the Fed would raise rates on Thursday for the first time since 2006, and the announcement triggered broad dollar losses, though the central bank left open the possibility of a modest policy tightening later this year.

The euro gained more than 1 per cent to a three-week high of US$1.1441 and was last at US$1.1401, down about 0.3 per cent from late US levels but still well above Wednesday's one-week low of US$1.1214.

The dollar index, which tracks the greenback against a basket of six major currencies, stood at 94.632, edging up about 0.1 per cent after dropping as low as 94.360, its lowest since Aug 26.

The dollar steadied against the yen after a more moderate decline. It was buying 120.18 yen in early Asian trade, slightly above late US levels after falling as low as 119.80 yen overnight in the wake of the Fed's more downbeat assessment. "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term," the US central bank said.

The latest count put 13 of 17 Fed policymakers expecting to raise interest rates in 2015, down from 15 at the bank's June meeting. Four policymakers, up from two, now believe the bank should stand pat until at least 2016. "With the overwhelming majority in the FOMC still expecting to hike this year, and the domestic economy maintaining its momentum, we stick to our call of a December rate hike,"strategists at Rabobank said. "Although Ms Yellen said that October remains a possibility, we doubt that the economic data between now and then will be sufficient to hike," they said in a note to clients.

Rates futures placed an 18 per cent chance that the US central bank would end its near-zero interest rate policy in October, down from 41 per cent Thursday morning, according to CME Group's FedWatch program.

The Australian dollar edged up 0.1 per cent to US$0.7182 with investors focused on parliamentary testimony by Reserve Bank of Australia Governor Glenn Stevens.

REUTERS