Dollar Reverses Initial Gains Following Rate Cut on Rate Uncertainty

The dollar reversed gains against the euro on Wednesday as traders concluded that the Federal Reserve's statement after its policy meeting left the door open for further interest rates cuts.

AP

The euro rose 0.2 percent to $1.5588, after dipping to $1.5541 shortly after the interest rate announcement.

The dollar pared gains versus the yen and it was last up 0.4 percent at 104.44 yen .

"The statement does not make it clear what's the outlook for the next meeting. The Fed was somewhat more dovish this time and they can easily go both ways from here," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.

"People were expecting a clear sign that the next move would be a pause, but the statement doesn't make that clear."

A surprise rise in private-sector jobs this month along with data showing the U.S. economy grew at a higher-than-expected pace initially fueled further dollar buying.

But some of the dollar's gains came off as details on U.S. gross domestic product were not as positive as the headline number suggested.

Overall, the data bolstered the view that U.S. interest rates may be nearing a bottom.

"On the surface, the ADP (jobs) and GDP numbers are better than expected. But I wouldn't read too much into them. I think both reports are overstating the health of the U.S. economy at this point," said Michael Malpede, senior currency strategist at MAN Global Research in Chicago.

The dollar rose 0.1 percent against a basket of currencies to 72.945.

Copyright 2008 Reuters. Click for restrictions.