Dollar gives up gains after Fed release

NEW YORK (CNNMoney.com) -- The dollar gave up gains against the euro Wednesday after the Federal Reserve left interest rates unchanged near zero and said economic activity is beginning to improve.

What prices are doing: The dollar fell 0.2% versus the euro to $1.3201. Earlier, the shared currency fell to $1.3114 -- the lowest level since late April 2009.

The dollar gained 0.4% against the British pound to trade at $1.5191. Against the Japanese yen, the dollar was up 1% to ¥94.09.

What's moving the market: The euro came under pressure in earlier trading after Standard and Poor's downgraded the sovereign debt ratings of Spain to "AA" from "AA+" and placed the country on negative outlook.

S&P said the move reflects "risks to budgetary position" for the troubled European nation. It followed Tuesday's downgrade of both Greece and Portugal, which resulted in a precipitous decline in the U.S. stock market.

Investors have punished the euro in recent weeks on growing fears that the dire fiscal situation in Greece could signal broader problems among other struggling members of the European Union.

While Greece has officially requested a $53 billion in loans from the European Union and the International Monetary Fund, the funds have not yet been made available.

The country is facing a May 19 deadline for refinancing about $11.4 billion in debt and investors are worried it could default. However, reports said Wednesday that the IMF is considering a plan to offer Greece additional aid.

The Federal Reserve concluded a two-day policy meeting and left interest rates steady at historic lows near zero, as expected. As is usual, investors were more interested in what the bankers said in the statement about the outlook for the economy and interest rates.

The Fed said "economic activity has continued to strengthen and that the labor market is beginning to improve," but that recovery will remain "moderate."

What analysts are saying: "The market is still extremely volatile," said Nick Bennenbroek, chief currency strategist at Wells Fargo in New York.

"The main catalyst for most currencies remains the developments from Europe, with the Federal Reserve taking a back seat," he said.

Bennenbroek said he would have been "quite surprised" if the central bank announced any change to its current monetary policy stance given the still vulnerable economy. "There's no point for the Fed to rock the boat at this point," he said.