The dollar held near the previous day's one-month low against the euro on Wednesday after the Federal Reserve raised rates as expected, but signalled that tightening would continue only at a moderate pace. The Fed raised rates by a quarter percentage point to 1.75 percent on Tuesday, its third such move since the benchmark was raised from a 46-year low of 1.00 percent in June. The dollar hit a one-month low against the euro and lost over one percent against the Swiss franc after the announcement, as the accompanying statement said inflation pressures and inflation expectations had eased. "The inflation comment is supporting the view that the gradual tightening of monetary policy will not accelerate and might even take a small pause when we come towards the end of the year," said Niels Christensen, currency strategist at Societe Generale in Paris. The euro was down slightly from the U.S. close at $1.2305 at 0730 GMT, but within half a cent of a one-month high of $1.2346 hit in New York. The euro rose more than one percent against the dollar on Tuesday. The dollar rose a quarter percent to 1.2567 Swiss francs , after dropping 1.4 percent to one-month lows of 1.2513 francs on Tuesday. The dollar edged up against the yen at 109.91 .
ONE MORE TO GO?
In the statement, the Fed offered a relatively optimistic view of the U.S. economy, saying "output growth appears to have regained some traction, and labour market conditions have improved modestly". But it said "inflation and inflation expectations have eased in recent months", raising doubts as to whether it would stick to the same pace of measured rate rises at its two remaining meetings this year, in November and December. A survey taken in New York after the Fed decision showed all 22 economists polled expect another rate rise on November 10, just after the presidential election. Fifteen of the 22 economists see rates at 2.0 percent at the year-end, implying they expect no rate rise in December. "The impact on currency markets from this is a weaker dollar," said Johan Javeus, FX strategist at SEB in Stockholm. "We still think the Fed would deliver one more rate hike, possibly in December, but we don't know how fast they need to raise rates to go back to neutral levels." Some dealers said the euro's gains on Tuesday were an extension of a rise prior to the Fed action, which they said could be linked to expectations of mounting inflationary pressure in the euro zone. "There was talk of one big buyer of euro out of the U.S. yesterday that more or less lifted euro/dollar when we had the announcement -- buying euro maybe not only against the dollar but also against the yen," said Christensen. The euro was trading at 135.30 yen , after hitting one-month highs of 135.49 yen on Tuesday. The market will be keeping a close eye on any comments on economic growth or inflation in the euro zone by ECB President Jean-Claude Trichet, who will testify to the European Parliament's Economic and Monetary Affairs Committee at 0830 GMT.
Minutes of the Bank of England's September policy meeting will also be released at 0830 GMT and could shed light on how convinced Britain's interest rate-setters are of recent signs of a slowdown in the housing market. The Bank of England has raised rates five times in quarter-point moves since last November, to 4.75 percent. Markets were also watching oil prices, which hovered near $47 a barrel, compared with all-time highs of $49.40 set last month, ahead of data expected to show a big drop in fuel stocks in the U.S. due to weather-related disruptions to output and shipments.////