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NEW YORK: The US dollar fell on Thursday and hit its lowest in a week as investors digested the Federal Reserve’s monetary policy outlook a day after the US central bank’s expected interest rate hike, while the euro rose as investors watched developments in Russia-Ukraine talks.

The Fed’s monetary policy turned hawkish with its quarter-percentage-point rate increase Wednesday and projection that the federal funds rate would reach a range of 1.75% to 2% by the end of 2022 and 2.8% next year, but the central bank did not deliver a tougher surprise that some investors might have been expecting.

“The strongest message yesterday was that the Fed was going to hike and it was primarily concerned with elevated inflation pressures,” said Bipan Rai, North American head of foreign exchange strategy at CIBC Capital Markets in Toronto.

“The market is kind of taking the bet that the Fed has this view now but that could shift in the coming quarters, and there’s a lot already priced in to the short-term interest rate markets for the Fed this year. Some of that is being pulled back, and that’s one of the reasons why the dollar has come under pressure.”

The dollar index, which measures the greenback’s strength against six trading currencies, was down 0.5% at 97.997 and hit its lowest in a week. The index remains up 2.3% for the year so far.

The euro was up 0.5% at $1.1096 and touched its highest in a week. Russian forces in Ukraine are blasting cities and killing civilians but no longer making progress on the ground, according to Western countries.

The Russian rouble firmed in Moscow and was volatile in offshore trading.

The commodity-sensitive Australian dollar was up more than 1% against the US dollar.

Oil prices surged more than 7% on Thursday after the International Energy Agency (IEA) said three million barrels per day (bpd) of Russian oil and products could be shut in from next month.

The British pound weakened against the euro after the Bank of England raised interest rates as expected, but softened its language on the need for further increases.

Money markets are pricing less than 120 bps of rate hikes by year-end.

The dollar was down 0.1% against the Japanese yen. Earlier Thursday, Bank of Japan Governor Haruhiko Kuroda said Japan’s inflation was unlikely to hit a central bank target of 2%, even accounting for rising energy costs, making the case for keeping monetary policy ultra-easy.

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