The dollar index fell 0.6 percent to a one-month low on Thursday after the Federal Reserve disappointed investors who had hoped for a clearer signal on when the US central bank will raise interest rates. In the European session, the Norwegian crown was in the limelight, falling sharply after Norway's central bank cut rates and left the door open for another reduction in September. The euro rose 1.5 percent to a six-day high of 8.8360 crowns, and even the much unloved dollar rose 1 percent to trade at 7.73 crowns.
The Swiss franc inched up after the Swiss National Bank kept interest rates unchanged at -0.75 percent and slightly tweaked its inflation forecasts. The Swiss central bank added that the franc was significantly overvalued and should continue to weaken over time. The euro, which was trading 0.2 percent lower against the Swiss franc before the SNB statement, weakened and turned flat on the day. It was at 1.0450 francs, compared with $1.0465 just before the SNB rate decision and economic forecasts. The dollar was down 0.6 percent at 0.9170 francs, compared with 0.9213 francs beforehand.
"The SNB did not move, but surprisingly they upgraded inflation forecasts for this year and next. Some were expecting a dovish bias but that has not happened," said Petr Krpata, FX strategist at ING. "If the Greece uncertainty continues, then we expect the SNB to take more action and lower interest rates. Our call is for a modest downward bias for euro/Swiss franc." The dollar index fell 0.6 percent to 93.616 - its lowest in a month - after Fed Chair Janet Yellen on Wednesday emphasised that a rate hike was still up in the air and rested squarely on further improvement in the labour market.
In their projections, Fed officials also saw slightly lower rates at the end of 2016 and 2017 than forecast in March and more policymakers were now in favour of raising rates only once or not all this year. Overall, the projections for interest rates and the remarks by Yellen were interpreted as dovish, analysts said. "Leaving the dots (projection for interest rates) for this year unchanged but seeing an increasing number of policy-makers advocating only one move leaves the market guessing if the Fed may start hiking in September or December," Morgan Stanley analysts said in a note.
The Fed was signalling it would increase rates less than previously indicated, they said, undermining the dollar. The dollar fell 0.7 percent to 122.55 yen, down from Wednesday's high of 124.465. The dollar's weakness pushed up the euro despite the risk of a debt default by Greece, which is still unable to strike an agreement with its creditors on a deal to unlock fresh funds. The euro rose 0.7 percent to a one-month high of $1.1420.