Dollar inches lower

The dollar slipped on Thursday after the Federal Reserve painted a less gloomy outlook for the US economy but also said rates would remain low for a while, an assessment that led investors to return to commodity-linked currencies. The Fed said it would slow the pace at which it buys Treasuries by extending the duration, but not the size, of its $300 billion programme to buy long-term government securities.
The US central bank kept interest rates near zero and said they would likely stay there for an extended period, which dealers said scaled back market speculation that the Fed might raise rates soon. "The Fed move basically did not have enough impact to alter the market trend of funds flowing into riskier assets," said Kazuyuki Kato, treasury department manager at Mizuho Trust & Banking.
"The prospect that the Fed will keep rates low will likely be one factor causing dollar weakness in the long term," he said. Primary dealers polled by Reuters do not expect the Fed to raise rates until 2010 at the earliest, with four banks seeing a hike in the first half and seven in the second half.
The euro rose 0.3 percent from late US trade on Wednesday to $1.4227. Higher yielding currencies such as the Australian and New Zealand dollars also rose, extending gains made the previous day after rebounding from steep losses. The Aussie was up 0.3 percent at $0.8364, having fallen as low as $0.8180 on Wednesday, while the kiwi advanced 0.3 percent to $0.6736.
A trader at a European bank said the market had generally taken the Fed's statement as dovish, which was broadly positive for risk and negative for dollar. "But equity markets still don't look like they have that much steam behind them so people are cautious about piling into risk trades at the moment," he said.
Asian share markets gained on Thursday but many are still largely unchanged so far in August and remain below recent 2009 peaks. The Aussie and kiwi are also sitting just below their highs for the year scored earlier in the month. The dollar was steady at 96.08 yen but below last week's eight-week high of 97.79 yen.
Traders said the US currency's upside against the yen seemed to be capped due to talk of Japanese investors repatriating funds related to $27 billion in coupon payments on US Treasuries due on August 15. In addition, $61 billion in coupon securities mature on the same day.