FOREX-Dollar slips as Fed fails to live up to hawkish billing

Wed Jun 18, 2014 7:57pm EDT

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By Ian Chua

SYDNEY, June 19 (Reuters) - The U.S. dollar wallowed at its lowest in nearly two weeks against a basket of major currencies early on Thursday, having beat a hasty retreat after the Federal Reserve signalled that interest rates will stay low for a while yet.

New projections suggested the Fed saw rates rising a bit more in 2015 and 2016 than it previously forecast, but officials lowered their long-term rate target. The Fed also sounded comfortable about the inflation outlook despite recent signs of a pick-up in price pressure.

As a result, U.S. Treasury yields fell, with the benchmark 10-year rate dropping back below 2.6 percent.

The dollar index unwound all of the gains made in the lead-up to the Fed meeting. It slipped 0.3 percent and fell as far as 80.365, a low last seen on June 9.

Against the yen, the greenback dipped to 101.91 from a one-week high of 102.38, while the euro bounced to a high of $1.3600, pulling well away from this week's trough of $1.3513.

"In the end, it was just merely a battle of positioning as traders unwound positions in anticipation of a more hawkish Fed tone following the spike in CPI," said Stan Shamu, market strategist at IG in Melbourne.

The Fed cut its monthly bond buying program by a further $10 billion to $35 billion in a widely expected move and expressed confidence that the economic recovery remained on track.

Commodity currencies fared particularly well against the dollar with the New Zealand currency rallying nearly 1 percent to a six-week high of $0.8736.

The outlook for higher NZ interest rates was underlined by data showing the economy grew a solid 1.0 percent in the first quarter from the previous quarter, a result that cemented New Zealand as one of the fastest growing developed economies.

The kiwi was last at $0.8719, still within striking distance of a near three-year peak of $0.8779 set last month.

The session in Asia is expected to be subdued given a dearth of market-moving economic data and with many dealers more happy to nap than trade after a night of watching the World Cup. (Editing by Richard Pullin)

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