US dollar weakens after the Federal Reserve keeps interest rates on hold

US dollars seen at a bank in Westminster, Colorado in 2009.
US dollars seen at a bank in Westminster, Colorado in 2009.PHOTO: REUTERS

NEW YORK (AFP) - The United States dollar has weakened after the Federal Reserve left interest rates on hold and pared back its growth and rate hike forecasts.

The Federal Open Market Committee said at the end of a two-day policy meeting that it would keep its benchmark federal funds rate, a short-term peg for dollar lending rates around the world, at a low 0.25-0.50 percent.

"The Fed left interest rates unchanged, as expected, but sketched a slightly weaker outlook for growth and interest rates, news that initially weighed on the dollar," said Joe Manimbo at Western Union Business Solutions.

The FOMC lowered its forecast for US growth to 2.0 percent for this year, from 2.2 percent previously. It sees that same tepid pace holding through 2018.

And it stuck to expectations that it would raise the fed funds rate twice over the next six months to near 1.0 percent but lowered the pace of potential rate hikes in 2017 and 2018.

After Fed Chair Janet Yellen's dovish post-meeting news conference, the US dollar ended the day down 0.5 percent against the euro, at US$1.1263.

The greenback also fell against the yen and the pound on the eve of interest rate decisions by the Bank of Japan and the Bank of England. Neither central bank is expected to change monetary policy, although some investors bet the BoJ would announce another round of stimulus.

The pound has been hammered by fears about Britain's looming June 23 referendum on quitting the European Union as a spate of recent polls showed growing support for an exit.

On Wednesday sterling jumped to US$1.4212 as the latest poll by ComRes showed support for remaining in the EU at 46 percent and the pro-exit side at 45 percent.