Dollar falls broadly as Fed lowers growth forecast

By Lucia Mutikani

NEW YORK (Reuters) - The dollar fell to a one-month low versus the euro on Wednesday after the Federal Reserve cut its 2008 growth forecast and warned of higher unemployment, reducing prospects of an interest rate hike later this year.

Although minutes of the Fed's April 29-30 policy meeting highlighted worries over inflation and signaled more interest rate cuts were unlikely, it was insufficient to halt the dollar's slide and it also touched a one-week low versus the yen.

"What people are responding to is that the Fed raised the bar on further interest rate cuts, but it also did not lower the bar for interest rate hikes. The markets were looking for some indication of the latter," said David Gilmore, partner at FX Analytics in Essex, Connecticut.

"The signal from there is that the Fed is not terribly confident about the economy coming out of this slowdown at any sort of pace that would warrant what the front end of the Treasury market is pricing, which is rate hikes by year-end."

The euro surged as high as $1.5791, closing in on a record peak above $1.60 touched last month. It last traded at $1.5789, up 0.8 percent on the day.

The dollar dropped to a one-week low of 102.97 yen, before recovering to 103.01 yen, still down 0.6 percent. The dollar dived 1.1 percent to 1.0250 Swiss francs.

The New York Board of Trade's dollar index .DXY, which tracks the dollar's performance against a basket of six currencies, fell as low as 71.903.

FED SLASHED GROWTH FORECASTS