Dollar pares losses after Fed raises short-term rates

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The dollar pared earlier losses against a basket of major currencies on Wednesday following the Federal Reserve's widely expected decision to raise short-term interest rates.

Earlier, the dollar index fell to its lowest level since the day after the U.S. election in November, following the release of weaker-than-expected U.S. CPI and retail sales data on Wednesday.

U.S. retail sales in May recorded their biggest drop in 16 months and consumer prices unexpectedly fell month over month, suggesting inflation pressures are moderating, which could impact further Federal Reserve interest rate increases this year.

The dollar index was last down nearly 0.4 percent at 96.618, after earlier touching its lowest since Nov. 9 at 96.323.

Earlier, the euro rose to its highest since Nov. 9 against the dollar, hitting $1.1295. It traded at $1.1251 immediately following the Fed announcement.

Against the yen, the greenback fell by more than 1 percent following the data release to touch 108.95 yen, its lowest since April 21. Recently, it traded at 109.29.

"The numbers cast serious, serious doubt on whether there will be another hike this year," said Greg Anderson, global head of foreign-exchange strategy at BMO Capital Markets in New York.

Why the British pound could be headed lower
Why the British pound could be headed lower

Fed funds futures prices showed traders had seen a more than 95 percent chance of a rates rise to between 1.00 and 1.25 percent.

The likelihood of a rate hike in September has significantly weakened, however, with futures rates showing just a 17 percent chance of an increase, down from 28 percent before the data release on Wednesday, according to CME Group's FedWatch.

The Australian dollar rose 1.3 percent to its highest against its U.S. counterpart since April 3. New Zealand's dollar rose 1.25 percent to its highest since Feb. 7.

The Canadian dollar rose 0.45 percent, hitting its highest against the U.S. dollar since Feb. 27. The loonie was on pace for its best week since January 2016, up 2.5 percent since Friday.

Worries about global growth and weakness in markets for the commodities they produce has weighed on commodity-linked currencies like the Aussie, kiwi and loonie.

But after comments by Bank of Canada Deputy Governor Carolyn Wilkins on Monday flipped markets towards an earlier rise in borrowing rates there, traders and analysts said short bets against commodity-linked currencies looked exposed.