Dollar tumbles after Fed holds rates steady

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The dollar slumped on Thursday after the U.S. Federal Reserve held interest rates steady amid a slew of global challenges, and lowered its long-term outlook for the American economy.

The U.S. currency touched three-week lows versus the euro and two-week troughs against the Swiss franc, with the greenback's outlook darkening with revisions in the interest rate trajectory for the world's largest economy.

Fresh economic projections showed 13 of 17 Fed policymakers foresee raising rates at least once in 2015, down from 15 at the last meeting in June. Four policymakers now believe rates should not be raised until at least 2016, compared with two who felt that way in June.

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In keeping rates unchanged, the Fed said: "Recent global economic and financial developments may restrain economic activity somewhat and are likely to put further downward pressure on inflation in the near term."

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"I can't say it was a major surprise that the Fed did not move. I am a little surprised at the dovishness of the statement," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in New York.

"I would have expected a 'no move' to be accompanied by a slightly more upbeat assessment of the economy. Instead, what we got was more focus on macroeconomic uncertainties, and that was a little bit of surprise," Eisner said.

In afternoon trading, the euro rose to three-week highs of $1.1437, up 1.30 percent, Against the yen, the dollar fell 0.53 percent to 119.93.

The dollar, meanwhile, dropped to two-week lows versus the Swiss franc and it last traded at 0.9596, down 1.15 percent.