June 19, 2014 / 7:40 PM / 3 years ago

FOREX-Dollar slips on dovish Fed, Norwegian crown tumbles

* Dollar index falls to 3-week low as Fed sticks to easy
    * Greenback recovers vs euro, yen on rise in U.S. yields
    * Norwegian crown sinks after central bank hints at rate cut
    * Sterling rises to highest vs dollar since Oct 2008

 (Updates market action, adds quote)
    By Richard Leong
    NEW YORK, June 19 (Reuters) - The U.S. dollar fell on
Thursday a day after the Federal Reserve signaled it will stick
with near-zero interest rate policy to support the world's
biggest economy, disappointing traders who had bet on hints of
policy tightening.
    The greenback touched a three-week low against a basket of
currencies at 80.147. The euro hit a 10-day high against
the dollar, while sterling reached a 5-1/2 year peak
versus the greenback before an afternoon spike in U.S. yields
helped lift the dollar from its earlier lows.
    "The dollar continues to move lower as long as we are in an
environment where the U.S. central bank is passive in tightening
policy," said Kathy Lien, managing director of FX strategy at BK
Asset Management in New York.
    While U.S. policymakers stuck to their message of ultra
loose policy, their Norwegian counterparts did an about-face.
    The Norges Bank warned it might have to cut borrowing costs
to aid its economy, which has struggled recently. This dashed
expectations of higher rates and ignited frantic selling of the
Norwegian crown. 
    The euro booked a 2 percent gain, its biggest single-day
rise in a year against the Norwegian currency, at 8.3316 crowns
    The dollar rose to a four-month high against the crown, last
traded up 1.8 percent at 6.1192 crowns.

    U.S. Fed officials released fresh economic projections on
Wednesday following their two-day policy meeting. Officials
expected policy rates to rise a tad more in 2015 and 2016 than
they had previously forecast, but lowered their long-term rate
target and their 2014 U.S. growth projections. 
    The forecasts, together with the Fed's policy statement and
Fed Chair Janet Yellen's news conference, stopped well short of
the hawkish drift some traders had expected.
    That hurt the dollar and sent benchmark Treasuries yields to
a two-week low at 2.565 percent earlier.
    Longer-dated U.S. yields turned higher as traders sold
Treasuries to hedge their positions following an auction of
30-year Treasury Inflation-Protected Securities. The bounce in
yields lifted the greenback from its earlier lows against the
euro and yen. 
    "It's just a trading move more than anything else. There's
no conviction here," said Joseph Trevisani, chief market
strategist at Worldwide Markets in Woodcliff, New Jersey.
    The dollar was little changed against the yen at 101.92 yen
 in late U.S. trading, while the euro clung to a 0.07
percent gain versus the greenback at $1.3607 after earlier
touching $1.3630, the highest since last Monday.
    The sterling climbed to its strongest level against the U.S.
currency since Oct. 2008, and last traded at $1.7042. 

 (Additional reporting by Anirban Nag; and Patrick Graham in
London; Editing by Catherine Evans, Meredith Mazzilli and Chizu

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