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Dollar Hits Two-Week Low Vs. Euro After Fed Decision

The dollar fell to two-week lows versus the euro on Wednesday, as selling accelerated in the aftermath of the Federal Reserve's decision to hold key interest rates steady at 2.0 percent.

Analysts said although the Fed's accompanying statement raised concerns about inflation, it also said price pressures are expected to moderate this year. That has pared back expectations of aggressive rate hikes this year.

In contrast, the European Central Bank has flagged a rate hike next month,

One trader said that no matter how hawkish the Fed sounds, it cannot match the ECB, which he expects will hike more than once this year.

The euro rose to two week highs versus the dollar at $1.5684.

A report on Wednesday showing orders for U.S. durable goods were unchanged in May had little impact on currency prices, and analysts said they expected little reaction to data tracking May new home sales due at 10 a.m. New York time.

U.S. housing data has been uniformly poor, and a report earlier this week showed U.S. consumer confidence fell to a 16-year low, raising doubts about the Fed's ability to raise interest rates later this year to stem inflation.

However, U.S. short-term interest rate futures are pricing in a half percentage point of rate hikes by year end.

"We look for a rate hike in September, primarily because we think the current target rate is on an emergency setting and arguably is inflationary," strategists at Brown Brothers Harriman wrote in a note to clients.

For now, they said the Fed will attempt to sound more hawkish on inflation without painting itself into a corner, "as, arguably, the ECB has done."

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