(Reuters) - The U.S. dollar weakened in choppy trading after the Federal Reserve cited risks to U.S. growth from austerity in Washington and maintained its plan to buy bonds in order to keep borrowing costs low to prop up the economy.
After the euro pushed to a two-month high against the greenback
following disappointing economic data earlier on Wednesday, the Fed's statement
weakened the euro zone currency, albeit briefly.
But the dollar spiked
higher against the yen, climbing from an early two-week low, before slipping
In its statement following a two-day meeting, the Fed reiterated it
will continue to buy $85 billion worth of bonds each month to support a
moderately expanding economy that still has too high an unemployment
Only a month or so ago, investors expected the Fed to start scaling
back asset purchases.
"The talk of tapering (bond purchases) has not only
been pushed to the back burner but pushed off the stove altogether. It's not
something we're likely to see until 2014," said Michael Woolfolk, senior
currency strategist at BNY Mellon in New York.
In mid-afternoon New York
trade, the euro maintained a 0.35 percent advantage on the greenback, trading at
$1.3212. The May Day holiday kept most of Europe's markets closed.
European Central Bank is expected to cut the main euro zone interest rate at its
monthly meeting on Thursday as the bloc's economy has weakened
"Going into the ECB meeting, it might cut its policy rate and it
might give some forward guidance, which is the most you could expect to get.
Those looking for quantitative easing from the ECB will be disappointed," said
John Canally, investment strategist and economist at LPL Financial, in
The U.S. dollar slipped 0.06 percent to trade at 97.35 yen
Immediately following the Fed's statement the dollar had surged to a
New York-session high of 97.54 yen before the gains eroded.
Over the last
three trading days, the yen has found support around 97.18, the 38.2 percent
Fibonacci Retracement level from the April 4 low to the April 11 high, according
to Reuters data.
The dollar index, which measures the U.S. currency's
value against a basket of currencies, dropped as low as 81.331, its weakest
since Feb. 25. It was last at 81.503, down 0.3 percent.
Data released on
Wednesday showed U.S. companies hired the smallest number of employees in seven
months in April while manufacturing growth slowed. Another report showed U.S.
construction spending dropped to a seven-month low in March.
will get further clues about the health of the economy when the government
releases its nonfarm payrolls report for April on Friday. Economists are looking
for job growth of 145,000 last month, up from 88,000 for March.
spiked to a session high of $1.5604 after the Fed's decision, its best showing
since mid-February. Earlier strength for sterling was underpinned by a
better-than-expected UK manufacturing survey.
The Australian dollar fell
0.8 percent to $1.0282 after data showed growth in China's manufacturing sector