The US dollar rallied against the euro and yen on Wednesday after the Federal Reserve held off on offering new monetary stimulus, a move that may contrast with action expected from an upcoming European Central Bank meeting. While Fed policymakers reiterated their disappointment with the slow pace of progress in bringing down the country's 8.2 percent jobless rate, the US central bank dashed expectations among some investors by taking no new measures, which buoyed the dollar.
While the Fed signalled further bond buying could be in store to help support a US economic recovery, it held off on announcing a third round of so-called quantitative easing, which would have been negative for the dollar. That is because quantitative easing is tantamount to printing money and dilutes the value of the dollar. "The statement clearly had a dovish bias, with the Fed saying that the US economy is decelerating and it seemed like there is some stimulus action in the works. But overall it was less dovish than the market had hoped," said Richard Franulovich, senior currency strategist at Westpac in New York.
The euro was last down 0.6 percent at $1.2224, remaining below a three-week peak of $1.2390 struck last week after comments from ECB President Mario Draghi. Draghi boosted the European currency last week by pledging to do everything necessary to preserve the euro, raising expectations the ECB might resume its bond purchase program, lowering borrowing costs for Spain and Italy.
But many analysts and traders say the impact of any ECB action would be temporary in any case without a sustainable economic recovery in battered southern Europe. Much of the euro zone is in a recession and record-high joblessness across the region is likely to keep alive chances of more interest rate cuts by the ECB in the near term, keeping sentiment toward the euro bearish. The Fed statement also buoyed the dollar against the Japanese yen. It last traded up 0.4 percent at 78.42 yen, according to Reuters data.
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