Dollar down on Fed announcement
Greenback falls against euro and yen after the U.S. central bank keeps interest rates on hold.
NEW YORK (CNNMoney.com) -- The dollar was down against the euro and yen Wednesday afternoon, after the Federal Reserve decided to hold interest rates steady.
The euro bought $1.5643 in afternoon trade, up from $1.5577 prior to the 2:15 p.m. announcement. The dollar bought ¥107.903, down from ¥108.217.
Currency traders at first embraced the Fed's policy statement as a sign that inflation is starting to replace slowing growth as the biggest risk for the economy. But the fact that the Fed did not raise rates suggests that the central bank also remains concerned about unemployment and economic growth, sending the dollar lower.
"People are looking at it both ways In terms of strength and weakness," said Dustin Reed, senior currency analyst at ABN AMRO. "Rates are moving higher, which is good for inflation, but there will still be weak growth going forward."
Reed said the Fed's decision to keep rates steady will not have a huge effect on the dollar one way or another in the next few days as traders weigh the decision.
Fed announcement
The U.S. central bank made a widely expected decision to leave the target for its key federal funds rate at 2%. It was the first pause for the Fed after making seven rate cuts since last September.
To date, the Fed has made boosting economic activity its first priority as the nation has slid towards a recession. But recent comments by key Fed officials have signaled that the central bank is becoming more concerned about rapidly rising inflation.
"This is a very tricky time for the Fed, since the economy is teetering on negative growth, but energy prices and inflation are moving higher," said Reed. "The Fed did a nice job of turning the ship without causing any major catastrophe."
Interest rate policy is the Fed's main tool for spurring economic growth or slowing it to keep prices in check. The fed funds rate is a benchmark for rates paid by consumers on many types of loans, including adjustable rate mortgages, home equity lines and credit cards and many types of business loans.
Other analysts believe today's decision to stand pat will ultimately give the greenback some legs.
"This is an important time for the dollar," said Hugh Johnson, chief strategist at ThomasLloyd Global Asset Management. "Odds are that the dollar will begin to stabilize starting today." 
