Dollar gains as Fed holds tight on policy

[NEW YORK] The US dollar reversed two days of losses to head higher Wednesday after the Federal Reserve left its policy trajectory in place, noting the economy's "solid pace" of growth.

The dollar headed to US$1.1284 per euro, up about 0.8 per cent, as the Fed's fresh policy statement suggested no deviation from its likely course to begin hiking interest rates around the middle of the year.

Some analysts had speculated that given the weakness of the eurozone economy, turbulence in several places and the negative impact of the strong dollar on US businesses, the Fed might put a pause in its march to a rate increase.

"The short and sweet monetary policy statement from the Federal Reserve indicates that the central bank did not want to send any new signals to the market," said Kathy Lien of BK Asset Management.

"The only wrinkle was their comment that international developments could affect their policy decisions, but we don't think this affects their plans for 2015 tightening," she said.

"Between elections in Europe, the political upset in Greece and unexpected easing in many parts of the world, there are a lot of moving parts for the Fed to consider, and this comment is their way of telling us that they aren't blind to what is happening abroad.

"However right now there are no immediate implications for the US economy or monetary policy." The Fed's decision came after yet another country, Singapore, took the opposite path Wednesday, announcing an easing of monetary policy by intervening to slow the appreciation of its currency.

The Singapore dollar dropped, with the US dollar buying S$1.3530, compared to S$1.3394 ahead of the announcement.

AFP