Dollar hits fresh 2-week high after Fed rate hike

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The U.S. dollar hovered near a two-week high against a basket of other major currencies on Thursday a day after the Federal Reserve hiked interest rates, on the view that the central bank's move would make U.S. assets more attractive.

Analysts said the monetary policy divergence between the tightening Fed and stimulative European Central Bank and Bank of Japan was firmly in place and drawing demand for the greenback.

The Fed's tightening policy fuels demand for higher-yielding U.S. debt compared to bonds in Europe and Japan, driving investment flows into the United States and boosting the dollar.

"The fact that the Fed finally embarked on tightening policy, no matter how gradual it may be, distinguishes it from other central banks around the world," said Sireen Harajli, a foreign exchange strategist at Mizuho Corporate Bank in New York.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, hit a two-week high and was last at 99.24, up 1.4 percent. The euro hit a more than one-week low against the dollar of $1.08.

The dollar hit a more than one-week high against the Japanese yen of 122.87 yen. It was last up 0.37 percent at 122.86 yen.

Although Fed Chair Janet Yellen said tightening would be gradual, Fed officials' median projected target rate for 2016 remained at 1.375 percent. This implies four quarter-point rate hikes next year.

Analysts said some traders' surprise that the Fed's rate forecasts, or "dot plot," did not come down to reflect a more dovish path of hikes into 2016 continued to support the dollar.

"There were some expectations that some of the dots would be driven a little bit lower," said Sebastien Galy, currency strategist at Deutsche Bank in New York.

China's yuan fell to its lowest in more than four months in offshore trading, and was last down 0.6 percent against the dollar, after the Chinese central bank guided the currency lower. The onshore rate hit a 4-1/2-year low, falling for a 10th day in a row and its worst run on record.