NEW YORK - The dollar hit a three-week low against the yen Tuesday, but was little changed against the euro after Federal Reserve policymakers signaled no shift in the outlook for interest rates.
The Federal Open Market Committee not only left its key interest rate at a 46-year low of 1 percent, as expected, but also reiterated its stance that inflationary pressures are low enough that it "can be patient in removing its policy accommodation."
Fed officials also acknowledged the recent batch of disappointing employment reports, noting in their post-meeting statement that, "Although job losses have slowed, new hiring has lagged."
The statement reaffirmed market expectations that the Fed would hold off from raising rates until at least late 2004, which may continue to weigh on the dollar. Low U.S. rates have been a major factor in the dollar's long-term downtrend because it makes it more difficult to attract enough foreign investment to fund the U.S. current account deficit.
However, the dollar was mostly directionless in choppy trading against most currencies after the Fed's decision.
"The dollar consequences will be marginal at best," said Jason Bonanca, director and currency strategist at Credit Suisse First Boston in New York. "The Fed's still not talking about removing policy accommodation, (so) this is not dovish enough to reignite dollar bearishness."
Marc Chandler, chief currency strategist at HSBC Bank in New York, agreed that the statement included "nothing really new substantially to elicit much of a response in the forex market."
Instead, the biggest moves in the dollar came against the yen amid continued speculation that the Bank of Japan would ease up on large-scale intervention. The dollar fell as far as 108.65 yen, a level not seen since late February. The dollar's slide against the yen started a chain reaction during the New York session, pushing European currencies down against both the yen and the dollar.
That, in turn, helped the dollar recoup most of its overnight losses against the European currencies, which were due in large part to continued jitters about an increase in global terrorism following last week's deadly bombings in Madrid.
In late New York trading, the dollar was quoted at 108.70 yen, down from 110.30 yen late Monday.
The euro was quoted at $1.2268, up from $1.2265 late Monday. The dollar was quoted at 1.2778 Swiss francs, up from 1.2748, and 1.3346 Canadian dollars, up from 1.3305. The British pound rose to $1.8126 from $1.8025.
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