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Euro whipsaws after Fed leaves rates unchanged

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The euro whipsawed against the dollar on Wednesday after the Federal Reserves said it would leave interest rates unchanged.

The latest statement from the Federal Open Market Committee, the U.S. central bank's policy-setting group, affirmed the prevalent view that the Fed is ready to end its near-zero interest rate policy by year-end as the world biggest economy has dug out of a recession worsened by the global credit crunch nearly seven years ago.

Although inflation has remained below the Fed's 2 percent target and overseas developments including the European debt crisis and most recently China's stock market turmoil have complicated the timing of a rate "lift-off," most analysts reckon the era of near-zero rates is coming to an end.

"Bottom line, on the surface the statement seems like a non event because it was about the same exact document as the one published in June but I do believe that the altering of the labor market comment is very noteworthy as it fits to the theme of "further improvement in the labor market" that would trigger a rate hike," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.

The common currency traded down about 0.2 percent 10 minutes ahead of the announcement and traded up 0.02 percent immediately afterwards, but failed to hold gains. It last traded down 0.8 percent against the greenback at $1.098.

"The Fed doesn't want to show its hand as it did in the 2013 taper tantrum. We don't want to see any volatility in the financial markets," Anika Khan, Wells Fargo senior economist said in a CNBC "Power Lunch" interview.

"We'll have two more nonfarm payroll reports, two looks at the PCE deflator. Inflation is going to play a very big role. When we look at core inflation numbers, that those numbers are gradually increasing."

The dollar also rose against the yen, trading 0.3 percent higher at 123.93 after the announcement.

Read More Here's what changed in the new Fed statement

The dollar index extended gains after the Fed left rates unchanged, trading from 0.05 percent down to trading 0.4 higher at 97.16.

Commodity currencies fell on the news, with the Australian dollar trading down 0.68 percent at $0.7294. It had traded down 0.27 percent ahead of the announcement.

The New Zealand dollar traded down 0.58 percent at $0.6671, having traded at $0.6701 earlier.

The prevalent view has been the U.S. central bank is ready to end its near-zero interest rate policy by year-end as the world biggest economy has dug out of a recession worsened by the global credit crunch nearly seven years ago.

Although inflation has remained below the Fed's 2 percent target and overseas developments including the European debt crisis and most recently China's stock market turmoil have complicated the timing of a rate "lift-off," most analysts reckon the era of near-zero rates is coming to an end.

Read MoreChina won't take down US stocks: Analysts

"The core message will be that the Fed will leave door the open for a September rate hike, which would be mildly dollar positive and disappoint those who are looking for a more dovish signal," said Alan Ruskin, global head of FX strategy at Deutsche Bank in New York.

Read MorePoll: When will the Fed raise rates?

The consensus among economists in a Reuters poll published on July 23 was that the Fed would raise rates by a quarter point at its September meeting, followed by another quarter-point move in December.

—CNBC contributed to this report.