Dollar wallows near 7-month low after Fed's surprise nod to doves

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US dollar languishes near a seven-month low against a basket of major currencies after the Federal Reserve wrong footed many investors. US dollar languishes near a seven-month low against a basket of major currencies after the Federal Reserve wrong footed many investors.
SummaryEuro clings near 7-1/2 mth high, Yen slips as risky assets rally.

the other.

"In a way dollar/yen is conflicted, it's in a battle between these two factors," Kotecha said.

"The Fed is clearly trying to cap U.S. yields, and I think from that perspective dollar/yen may struggle to push higher in the short term," he added.

The euro held steady at $1.3526, clinging near Wednesday's post-Fed high of $1.3543, which was the single currency's highest level since early February.

Higher-yielding currencies also fared well. The New Zealand dollar climbed 0.6 per cent on the day to $0.8393. It set a four-month high of $0.8414 earlier on Thursday, getting an added lift after data showed New Zealand's economy grew at a better-than-expected pace in the second quarter.

The Australian dollar eased 0.1 per cent to $0.9491, holding near a three-month high of $0.9530 set on Wednesday.

But once the dust settles, traders said markets will no doubt start to speculate on when the Fed will begin to taper its stimulus, giving the dollar a bit of support.

There are only two more scheduled policy meetings this year, one in October and one in December.

Barclays Capital analysts now believe the Fed will begin to taper in December and they expect the Fed to end its asset purchase programme in June 2014, three months later than their previous prediction.

"The delay in unwinding the asset purchase program also leads us to delay our expectation of the first rate hike; we now expect that in June 2015, later than our previous expectation of March 2015," they wrote in a note.

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