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Dollar Rises After Fed Keeps Interest Rates at 5.25%

The dollar rose against the euro and yen after the Federal Reserve made no change to short-term U.S. interest rates.

As expected, the Federal Open Market Committee kept rates on hold at 5.25% at its meeting. In its statement, the Fed acknowledged that U.S. economic growth had slowed in the beginning of 2007, but said its "predominant policy concern remains the risk that inflatioin will fail to moderate as expected."

Along with the Fed, the European Central Bank and Bank of England will also meet to set interest rates this week.

At its last meeting in March the Fed removed an explicit reference to possibly tightening monetary policy further and acknowledged that economic indicators had been mixed but said price pressures remained the biggest policy concern.

The ECB is expected to leave interest rates steady at 3.75% but is seen signaling a June rate hike. The Bank of England is expected to raise rates to 5.5%, taking U.K. borrowing costs to the highest in the Group of Seven rich nations.

The dollar edged up against the yen, but remained below a two-month high around 120.50 yen hit last week. The pound rose to brush the $2 level before falling after the Fed announcement .

The euro was slightly higher against the dollar.

The euro was slightly lower on the day against the yen, pulling back from the record high above 163.60 yen hit last week.

Dollar Slide Pauses

The dollar staged a broad rebound on Tuesday as investors adjusted positions ahead of the Fed's policy meeting, bringing the U.S. currency higher from a two-year low against a basket of currencies set earlier this month.

Mixed U.S. data in the past week has shown employment gains in April slowing to the weakest in two years even as factory activity, one of the economy's soft spots, rebounded last month.

The yen posted some gains today as investors pared back some carry trade positions, where the low-yielding Japanese currency funds purchases of higher-yielding currencies and assets, which has recently pushed the yen to record lows against the euro.

The Australian and New Zealand dollars both edged lower against the Japanese currency as carry trades were trimmed back.

Some traders said Japanese investors were selling dollars to bring home funds tied to some $55 billion of U.S. Treasuries maturing next Tuesday as well as $22 billion of coupon payments.

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