The US dollar rose against the euro and yen on Tuesday after the US Federal Reserve said the economic recovery was still too slow to bring down unemployment and reaffirmed its commitment to buy $600 billion in bonds to stimulate growth and create jobs.
US Treasuries extended losses after the Fed statement showed no signs of curtailing its economic stimulus measures, raising the prospect of accelerating growth and inflation. Trading was volatile after the announcement but the euro had already pared gains and retreated from a three-week high against the dollar after stronger-than-expected US retail sales data lifted bond yields and optimism about the economy.
The data, coupled with US President Barack Obama's deal last week to extend tax cuts for all earners, had left traders on alert to see if the Fed would give any hint at its Tuesday meeting of altering a $600 billion bond-buying program designed to push long-term interest rates lower. But the statement by the Fed's Open Market Committee ultimately did nothing to change investor expectations.
"The good thing is they are keeping it as is, and I take that to be moderately dollar positive," said Greg Salvaggio, vice president of trading at Tempus Consulting in Washington. The euro, which began the week at $1.32, hit a three-week high near $1.35 overnight after rising above the 38.2 percent retracement of its November decline. It was last at $1.3379, down 0.1 percent on the day.
The dollar rose 0.3 percent against the yen to 83.63 yen while the Australian dollar hit a one-month high above parity with the greenback as oil prices rose but then eased. Traders also said year-end positioning and low trading volume was exaggerating some price swings.
The euro also hit a three-week high against the yen, shrugging off the weaker-than-forecast current conditions element of the German ZEW survey. The US dollar and euro both fell to session lows against the Swiss franc ahead of the Federal Reserve announcement.
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