Dollar claws up from two-month lows

The dollar clawed up from two-month lows against a basket of major currencies on Wednesday, strengthening on a wave of short covering after the Federal Reserve held rates steady after a two-year string of non-stop increases.
The Fed kept rates at 5.25 percent and left the door open to more credit tightening if price pressures persist, but the dollar's resilience after the move disappointed some traders who had big bets on a deeper slide.
In its post-meeting statement, the Fed said that the central bank's array of rate rises should help moderate inflation over time even as risks of a pick-up in price pressures remain.
Analysts viewed the statement as giving the Fed leeway to hold rates steady so long as growth runs below the economy's long-term pace, even if inflation stays above the Fed's perceived comfort zone in coming months.
"Their inflation outlook is quite optimistic, so the nuance of the statement is less hawkish than expected," said Kikuko Takeda, a currency strategist at Bank of Tokyo-Mitsubishi UFJ. A Reuters poll found economists divided over whether the Fed was now done raising rates.
Thirteen of 23 primary bond dealers with the Fed believe this wraps up the credit tightening campaign. Only four expect a rate increase at the central bank's next meeting in September. An anticipated Fed pause has hurt the dollar this year, especially as the European Central Bank and others have steadily ratcheted rates higher.
The dollar pushed up to 115.55 yen from 115.30 yen late in New York, helped by buying from Japanese importers and institutional investors, traders said.
The yen trimmed some losses after data for Japanese machinery orders beat expectations by a wide margin and underscored how solid capital spending is helping to drive the Japanese economy's expansion. Orders jumped 8.5 percent in June from a month earlier, beating the median forecast in a Reuters poll for a fall of 0.4 percent. Takeda at Tokyo-Mitsubishi said the dollar would likely be confined between 114 yen and 117 yen through the end of August.
The dollar's trade-weighted index rose to 85.07, rebounding from the two-month low of 84.39 hit on Friday.
The euro fell to $1.2795 from around $1.2835 and was down around a cent from a high of $1.2899 marked after the Fed statement. The pound fell 0.4 percent to $1.9005, retreating from a 15-month high of $1.9146 hit the previous session.
After sterling soared on the Bank of England's surprise rate hike to 4.75 percent last week, investors are looking to the central bank's quarterly Inflation Report to see if it reinforces expectations for another tightening this year.