Dollar firms against euro after Fed statement

NEW YORK (CNNMoney.com) -- The dollar rose against the euro Wednesday, recovering from earlier losses, after the Federal Reserve announced plans to hold interest rates steady and said economic conditions continued to pick up.

As expected, the U.S. central bank held its fed funds rate, a key overnight bank lending rate, at historic lows near 0%, the level at which the rate has stood for a year.

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In its policy statement, the Fed said economic conditions will likely warrant "exceptionally low" interest rates for an "extended period" of time, echoing recent comments.

Given the challenges still facing the economy, the Fed expects inflation to remain subdued for some time.

However, the statement also identified a number of areas of the economy that are getting stronger, including the housing market and consumer spending. It said the labor market and business investment continue to lose ground, although at a slower pace.

The Fed said it will allow its various asset purchase programs, implemented last year during the financial crisis, to wind down next year according to schedule.

"By acknowledging the improvements in the economy and in turn downplaying the risks, the Federal Reserve has given dollar bulls the green light to charge forward," said Kathy Lein, director of currency research at Global Forex Trading. "We believe that the recovery in the dollar should last for the remainder of the year."

The dollar was up 0.2% versus the euro to $1.4507 after trading lower against the shared currency for most of the day. On Tuesday, the euro fell to a 2-1/2 year low versus the greenback.

Against the yen, the dollar gained 0.2% to ¥89.92.

But the UK pound remained supported by a better-than-expected report on the British labor market. The dollar was down 0.2% versus the pound to $1.6302.

Meanwhile, government reports Wednesday on inflation and the housing market came in largely as expected.

The Commerce Department's Consumer Price Index (CPI), a measure of consumer inflation, rose 0.4% after climbing 0.2% the previous month, matching expectations.

Core CPI, which excludes volatile energy and food prices, was unchanged from the prior month, compared to the expected gain of 0.1% for November, according to a Briefing.com consensus.

The Commerce Department also released a pair of housing market indicators.

Housing starts increased to a 574,000 annual unit rate in November from a revised 527,000 unit annual rate in October, matching expectations from Briefing.com consensus.

Building permits, a measure of builder confidence, rose to a 584,000 unit annual rate in November, which was more than the 570,000 rate forecast by Briefing.com consensus.