US dollar zigzags on Fed bond buying policy, Bitcoin smashes $20,000 barrier

The US dollar zigzagged to a session high and back on Wednesday after the Federal Reserve disappointed investors expecting a shift toward more purchases of longer-dated bonds, while investors kept their focus on Bitcoin, which smashed through $20,000 for the first time.

The US dollar index rose to 90.713 after the Fed's rate-setting committee on Wednesday said its monthly government bond purchase program will continue until the economy substantially improves.

But the dollar soon gave back the increase, again hovering near a two-year low. The dollar index was last at 90.2970, down 0.20%.

"I think so much of it is about what the Fed didn't do, specifically extending the maturity of the purchases or the pace of the purchases, and there were obviously some who had expected they would do that," said Erik Nelson, a macro strategist at Wells Fargo in New York.

The policy sends a signal that the Fed is comfortable with some increases in longer-term US yields, Nelson said. "I'm not sure markets were fully aware of that," he said.

Investors earlier on Wednesday were largely focused on Bitcoin, which has gained more than 170% this year, buoyed by demand from larger investors attracted to its potential for quick gains, purported inflation-resistant qualities, and expectations it will become a mainstream payment method.

Bitcoin was up 7.15% on the day to $20,824.

One impetus for the rise is that "it is starting to get a wider and more respectable client base, more businesses and more of the larger investors, so that makes it maybe more sustainable," said Lou Brien, a market strategist at DRW Trading in Chicago. That said, "it's not going to be without its hiccups along the way."

Wall Street remained mixed after the Fed's announcement, with the Nasdaq hitting a record high as investors awaited a potential fiscal economic stimulus package and the Fed repeated a pledge to keep its benchmark interest rate near zero.

Investors continue to eye progress with COVID-19 vaccine distribution.

US officials are working with Pfizer Inc to help maximize production capacity after the drugmaker told them it may be facing production challenges, US Secretary of Health and Human Services Alex Azar said on Wednesday.

The Swiss franc earlier on Wednesday touched a six-year high after the US Treasury labeled Switzerland a currency manipulator.

The Treasury said that through June 2020 both Switzerland and Vietnam had intervened in currency markets to prevent effective balance of payments adjustments, a move that investors shrugged off.

The Swiss franc was last at 0.8856, with the dollar down 0.02% against the currency on the day, while the Vietnamese dong was last at 23,126, little changed on the day.

Strong euro zone survey figures and hopes of progress on Brexit negotiations pushed the euro above $1.2212 against the US dollar on Wednesday for the first time since April 2018, but later notched downward.

Against the US dollar, the euro was last at $1.2186, up 0.29%.