Dollar erases gains after Fed grows more pessimistic

By Hibah Yousuf, staff reporter

NEW YORK ( -- The dollar fell against the yen and pared back earlier gains against the euro after the Federal Reserve cast a shadow over hopes for a stronger economic recovery.

What prices are doing: The dollar inched up slightly -- about 0.26% -- against the euro to $1.3186 and 0.19% against the British pound to $1.5861. The greenback also fell 0.55% against the Japanese yen to ¥85.38, nearing its 15-year low around ¥84.81.

Meanwhile, the dollar index -- which tracks the buck against several major rivals -- was flat.

The dollar posted larger gains against foreign currencies earlier in the session, rising more than 1% against the euro and pound.

What's moving the market: The dollar pared back its earlier gains after the Federal Reserve said it plans to stimulate the economy by keeping rates near zero percent and repurchasing government debt, Kathy Lien, director of currency research at GFT Forex said in an email to investors.

The central bank said it expects the economic recovery to "be more modest in the near term than had been anticipated."

That pessimistic tone spurred investors to dump dollars and "should lead to further dollar weakness," Lien said.

"This decision also implies that the outlook for the U.S. economy is murky enough for the central bank to take what is largely a symbolic move just to show that they are not sitting sidelines doing nothing," she said.

Earlier in the day, investors digested worse-than-expected economic news from Europe and the widening sovereign debt spread, which weighed on the euro and the pound and supported the dollar's climb.

"These factors can help the dollar turnaround," said Marc Chandler, global head of currency strategy at Brown Brothers Harriman. "During the euro's rally, the market ignored weak European data and emphasized weak U.S. data. But there's some new tension rising in the euro zone, and the negative stream of U.S. economic data seems to have been fully discounted."  To top of page

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