Euro briefly falls to lowest since early August on Fed decision; down 1%

Fed leaves rates unchanged

The euro fell against the dollar on Wednesday after the Federal Reserve kept interest rates unchanged.

The common currency fell about 1 percent to $1.0898 — an early August low — following the announcement. It was up 0.36 percent 10 minutes ahead of the central bank's statement release.

Euro/dollar 1 p.m. ET

Source: FactSet

The dollar index, which measures the greenback against a basket of major currencies, reversed losses to trade up 0.88 percent at 97.77. It was down 0.35 percent 10 minutes before the statement.

The Federal Open Market Committee voted to maintain its zero interest rate policy, citing weakness in exports and soft inflation as reasons to continue its historically easy monetary policy. The FOMC vote saw just one dissent, from Jeffrey Lacker, who wanted to see the Fed enact a quarter-point hike.

"The Fed is still very data dependent," Anika Khan, Wells Fargo Securities Senior Economist, told CNBC's "Power Lunch." "And when we look at where the overall economic growth is in the U.S., we clearly see that overall economic conditions have somewhat downshifted. Labor market conditions have been soft. The overall inflation level is still low. However, we should still be vigilant on the data that came out in recent months."

"The messaging is still very disunited," Khan said. "If we look at what the Fed could potentially be messaging for December, Janet Yellen will speak two times before that meeting, and so they will have an opportunity to all get on the same page and at least hear one clear message at that point."

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"Knowing that they were not going to raise rates today, the Fed did the right thing by leaving themselves plenty of flexibility to either punt again in December or finally hike if the data nudges them in that direction. If they leaned in any one direction today, they would again have put themselves in a corner," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note.

About 5 percent of traders expect the Fed to announce a rate hike Wednesday and just about 30 percent expect one in December, according to CME Group FedWatch on Wednesday. Those numbers have dropped since European Central Bank chief Mario Draghi signaled more dovish policy in the euro zone Thursday and have continued downward every day since.

While the Fed has indicated that it was considering a rate hike this year, traders are not buying it, said Richard Franulovich, senior currency strategist at Westpac in New York.

"We know that's not true," he said. "There has been some backsliding on numbers, and I would expect a statement that maybe acknowledges softer conditions."

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The Swedish crown continued its upward momentum before paring gains in afternoon trade. The currency gained about 0.9 percent on the dollar after the Swedish central bank said it would expand its quantitative easing program by 65 billion Swedish crowns ($7.7 billion) to a total of 200 billion crowns($23.7 billion).

The Riksbank increased its bond-buying but other assets were steady.

Not surprised to see EUR/USD parity in Dec: Pro

"Though on first glance this looks dovish, details are not and maintain the market status quo," Citi currency strategist Josh O'Byrne wrote in a research note.

The Australian dollar recovered from a pronounced tumble against the dollar. The Aussie fell to a three-week low of US $0.7112 on weaker-than-expected inflation data that increased the likelihood of further rate cuts there.

"On all measures it was a very soft number and it has hit the market quite a lot in Australia," said Westpac's Franulovich. "Betting now is that the RBA will be potentially cutting rates as early as next week."

—CNBC's Jeff Cox and Anita Balakrishnan contributed to this report.