BY RICHARD LEONG/Reuters
NEW YORK Thu Jun 19, 2014 8:42pm BST
(Reuters) - The U.S. dollar fell on Thursday a day after the Federal Reserve signaled it will stick with near-zero interest rate policy to support the world's biggest economy, disappointing traders who had bet on hints of policy tightening.
The greenback touched a three-week low against a basket of currencies .DXY at 80.147. The euro hit a 10-day high against the dollar EUR=, while sterling reached a 5-1/2 year peak versus the greenback before an afternoon spike in U.S. yields helped lift the dollar from its earlier lows.
"The dollar continues to move lower as long as we are in an environment where the U.S. central bank is passive in tightening policy," said Kathy Lien, managing director of FX strategy at BK Asset Management in New York.
While U.S. policymakers stuck to their message of ultra loose policy, their Norwegian counterparts did an about-face.
The Norges Bank warned it might have to cut borrowing costs to aid its economy, which has struggled recently. This dashed expectations of higher rates and ignited frantic selling of the Norwegian crown.
The euro booked a 2 percent gain, its biggest single-day rise in a year against the Norwegian currency, at 8.3316 crowns EURNOK=D4.
The dollar rose to a four-month high against the crown, last traded up 1.8 percent at 6.1192 crowns NOK=.
NEW FORECASTS, SAME MESSAGE
U.S. Fed officials released fresh economic projections on Wednesday following their two-day policy meeting. Officials expected policy rates to rise a tad more in 2015 and 2016 than they had previously forecast, but lowered their long-term rate target and their 2014 U.S. growth projections.
The forecasts, together with the Fed's policy statement and Fed Chair Janet Yellen's news conference, stopped well short of the hawkish drift some traders had expected.
That hurt the dollar and sent benchmark Treasuries yields to a two-week low at 2.565 percent US10YT=RR earlier.
Longer-dated U.S. yields turned higher as traders sold Treasuries to hedge their positions following an auction of 30-year Treasury Inflation-Protected Securities. The bounce in yields lifted the greenback from its earlier lows against the euro and yen.
"It's just a trading move more than anything else. There's no conviction here," said Joseph Trevisani, chief market strategist at Worldwide Markets in Woodcliff, New Jersey.
The dollar was little changed against the yen at 101.92 yen JPY= in late U.S. trading, while the euro clung to a 0.07 percent gain versus the greenback at $1.3607 after earlier touching $1.3630, the highest since last Monday.
The sterling climbed to its strongest level against the U.S. currency since Oct. 2008, and last traded at $1.7042.
(Additional reporting by Anirban Nag; and Patrick Graham in London; Editing by Catherine Evans, Meredith Mazzilli and Chizu Nomiyama)