June 19, 2014 / 2:45 PM / 4 years ago

FOREX-Dollar sags on dovish Fed, Norwegian crown stumbles

* Dollar index falls to 3-week low as Fed sticks to easy
    * Norwegian crown sinks after central bank hints at rate cut
    * Sterling rises to highest vs dollar since Oct 2008

 (Updates market action, changes dateline, previous LONDON)
    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 strengthened to a 10-day
high against the dollar, while the sterling advanced to
highest level versus the greenback since Oct 2008.
    "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.
    A longer-than-expected period of rock-bottom U.S. rates is
seen supportive for domestic spending and borrowing but 
depressive on the dollar's value against other currencies.
    While U.S. policymakers stuck to their message of ultra
loose policy, their Norwegian counterparts did an about-face.
    The Norges Bank ignited a wave of frantic trading in the
Norwegian crown after it overturned expectations of higher
interest rates next year, warning that if anything it might have
to cut borrowing costs as its economy has struggled in recent
    The euro jumped 1.8 percent against the Norwegian currency
in high trading volumes, to 8.3262 crowns from around 8.1772
crowns beforehand. That was the crown's weakest
since late April and put the single currency on track for its
biggest daily rise since mid-September.
    The dollar rose to a four-month against the crown, last
traded up 1.5 percent at 6.1036 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
    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.        
    "There were those speculating that the Fed would have to
come up with a more hawkish commentary and obviously they have
been disappointed," said Neil Mellor, a strategist with Bank of
New York Mellon in London.
    That hurt the dollar and sent benchmark Treasuries yields to
a two-week low at 2.565 percent. 
    The dollar dipped 0.1 percent against the yen at 101.80 yen
, holding within its trading range since last week. The
euro gained almost 0.3 percent versus the greenback at $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 $1.7045. 

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

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