NEW YORK (Reuters) - The dollar dropped to a five-week low against a basket of currencies on Thursday, still reeling from the previous session, when a statement from the U.S. Federal Reserve statement failed to signal a much faster pace of monetary policy tightening.
The U.S. currency also slid to a two-week-low against the yen, and a five-week trough versus the euro.
The Fed on Wednesday lifted the target overnight interest rate by 25 basis points to a range of 0.75 percent to 1.00 percent, but stuck to its original forecast of three rate increases this year. Investors were expecting four rate hikes in 2017.
Chicago-based Ron Waliczek, managing director of over-the-counter FX and interest rates at INTL FC Stone, said going into Wednesday’s Fed decision, the dollar had been overdone and had been so since 2014.
If ever there was a time when the dollar would consolidate and move lower, Wednesday provided the perfect opportunity as the market built in expectations of a more aggressive rate-hike pace, he said.
“Overall, I think the dollar will continue to be under some pressure for a period of time in which the market has to digest what the Fed is saying,” Waliczek said.
In late morning trading, the dollar index fell 0.3 percent to 100.40. It slid to as low as 100.39, its weakest level since Feb 9. Against the yen, the dollar was down 0.1 percent at 113.29, after earlier falling to a two-week trough.
The euro rose to a five-week high against the greenback, and was last at $1.0737, up 0.1 percent.
The single European currency was also buoyed by a Dutch election defeat of far-right leader Geert Wilders, which eased broader fears of a populist drift in European polls this year.
“The Dutch election result was consistent with the opinion polling,” said Bank of America G10 currency strategist Kamal Sharma.
“Ultimately, the near term is going to be dominated by French election risks. So we still see that the euro is likely to trade lower heading into those elections,” he added.
Sterling, meanwhile, rose on some surprise hints about the chances of a rise in UK interest rates. The pound hit a two-week high of $1.2373, after the Bank of England kept interest rates on hold but gave a handful of hints in voting results and its minutes that it might raise them soon.
The pound was last up 0.6 percent at $1.2360.
Additional reporting by Ritvik Carvalho in London; Editing by Bernadette Baum