Dollar seesaws after Fed leaves rates unchanged

  • Fed seen likely to kept rates unchanged on Wednesday
  • Dollar dropped after announcement.
  • U.S. payrolls report on Friday in focus
Matt Cardy | Getty Images

After the Federal Reserve widely anticipated decision to leave interest rates unchanged, the dollar dropped from a yearly high into the negative, before recovering all losses.

At the conclusion of its two-day meeting the Fed announced rates would remain at 1.5 to 1.75 percent, but offered nothing to dispel market expectations that it would raise rates when it meets in June.

"Inflation on a 12-month basis is expected to run near the committee's symmetric 2% objective over the medium term," a statement from the Federal Reserve said.

This week's language indicated more progress towards the 2 percent inflation goal Federal Reserve Chair Jerome Powell has emphasized is healthy for the economy.

"Raising rates too slowly would make it necessary for monetary policy to tighten abruptly down the road, which could jeopardize the economic expansion," Fed Chairman Jerome Powell said in a speech last month. "But raising rates too quickly would increase the risk that inflation would remain persistently below our 2% objective."

The dollar index hit a yearly high of 92.718 early in the session on Wednesday, but dropped into the negative after the Fed's announcement. It later pared losses, finishing up higher than before. The greenback last exchanged hands up 0.39 percent at 92.82, its highest level since Dec. 28.

Against the euro, the dollar was up 0.43 percent at 1.1941.

Growing doubts about when the European Central Bank will normalize its monetary policy has hurt the euro against the dollar in recent weeks.

German manufacturing grew at the slowest pace in nine months in April, a survey showed on Wednesday, as new-orders growth slowed for the fourth consecutive month.

The British pound gained after data showed that UK construction activity rebounded faster than expected last month after succumbing to snow in March, though the upturn did little to alter the view of investors that the Bank of England will leave interest rates unchanged next week.

Sterling lost 0.38 percent against the dollar at 1.3559.

Investors are also focused on Friday's U.S. employment report for April for further indications of the strength of the economy and inflation pressures.

U.S. private-sector employers hired 204,000 workers in April, the smallest monthly increase since November, the ADP National Employment Report showed on Wednesday.

--CNBC's Chloe Aiello contributed to this report.