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Dollar index erases earlier losses after Fed meeting

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The dollar turned positive against a basket of major world currencies in thin trade on Wednesday after the Federal Reserve made no change in forward guidance on interest rates on Wednesday.

The dollar index, which tracks the greenback against six currencies but is dominated by the euro, was marginally higher at 79.61, below an eight-day peak of 79.692 earlier in the global session but well above Friday's nine-month low of 78.998.

Expectations that the Fed will keep up its mammoth stimulus of bond purchases well into next year had weakened the dollar for well over a month, but analysts believe it is poised for a rebound.

"The dollar has sold off so much in recent weeks that the bias is for a stronger dollar if the Fed is not overly dovish this afternoon," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington D.C.

(Read more: Dollar braces for dovish Fed, gloomy US data)

Currency speculators, who hold major sway over price action, have recently piled on short positions, bearish trades that profit when the dollar drops.

The dollar index, which tracks the greenback against six currencies but is dominated by the euro, traded down 0.2 percent at 79.47, below an eight-day peak of 79.692 earlier in the global session but well above Friday's nine-month low of 78.998.

The index, which rose during the previous three sessions, is down 0.8 percent in October. That follows a 2.3 percent drop in September.

Symbol
Price
 
Change
%Change
=USD
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EUR/USD
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AUD/USD
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JPY/USD
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CHFUSD
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GBP/USD
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Analysts said expectations of a delay to Fed tapering, probably until at least March, may be already priced into the dollar, prompting investors who sold the U.S. currency in recent days to start buying it back.

"With the Fed event risk people don't want to enter new short positions," said Chris Turner, head of currency strategy at ING.

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