The dollar nursed losses in Asian trading on Thursday after declining sharply following the US Federal Reserve's decision to halve its outlook for interest rate increases to two from four by the end of this year. The greenback did manage to claw back some lost ground against the perceived safe-haven yen, which faded as sentiment improved and regional equities rallied on reduced expectations of Fed tightening.
Fed policymakers noted that the US economy faces risks from an uncertain global economy, even though moderate growth and "strong job gains" would allow it to raise rates this year.
"I think there was some amazement that the Fed had been so hawkish, when others were going to negative rates, but this brings them more in line with the global economy. But still, it was a reality check," said Bart Wakabayashi, head of FX sales at State Street Global Markets in Hong Kong.
Against its Japanese counterpart, the dollar added 0.2 percent to 112.73 after skidding to a one-week low of 112.335 following the Fed's announcement. It remained in its recent well-trod range between the February 11 low of 110.985 yen and the March 2 high of 114.875.
"If it stays in this range much longer, some might think it's formed a hard floor there, and you might have some people adding dollar longs back in the game," Wakabayashi said.
Against the yen, the euro added 0.1 percent to 126.42 yen. But it inched down 0.1 percent against the dollar to $1.1214 after the Fed helped propel it to a one-month high of $1.1244. The dollar index, which tracks the greenback against a basket of six major currencies, was down about 0.2 percent at 95.738, after plunging to a one-month low of 95.539 in the wake of the Fed announcement.
The index slid nearly 1.3 percent in the time between the Fed statement's release and the end of Fed Chair Janet Yellen's remarks, as investors ratcheted down their expectations that higher US interest rates would lift the dollar anytime soon, and pondered when the next tightening would come.
"We doubt that the doves will be ready for a rate hike within the next six weeks. However, by June there may very well be a majority for a hike," analysts at Rabobank said in a note.
Ahead of the Fed, the dollar initially rose after data showed an increase in underlying US inflation and the housing market continued to strengthen.
Later on Thursday, the Bank of England will also announce a policy decision, and is expected to stand pat.
A Reuters poll last week showed that most economists do not expect the BOE to raise rates until the first quarter of 2017, versus the fourth quarter of 2016 seen in a poll taken just a month before.
The pound inched up about 0.1 percent to $1.4262, holding above the previous session's nearly two-week low of $1.4053.
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