Summary Dollar fell against euro as Federal Reserve kept its key interest rate locked.
NEW YORK (AFP) - The Federal Reserve kept its key interest rate locked at zero as expected Wednesday, but its surprise dovish stance on the outlook sent the dollar tumbling.
The dollar traded flat at around $1.1248 per euro before the Fed s policy statement, and immediately sank 0.8 percent to around $1.1350 afterwards, before a slight rebound.
The main catalyst was the much-flattened interest rate curve implied by the Fed policy makers forecasts. While they kept unchanged their outlook for a 0.625 percent rate for the end of this year, the end-2016 rate was 1.625 percent, down 20 basis points from the March forecast, and 2.875 percent for 2017, 25 basis points lower.
Fed Chair Janet Yellen said the economy still has "room for further improvement" and stressed that, after the first rate liftoff, progress toward a normal monetary policy would be gradual.
"The Fed has once again surprised markets (including us) a bit on the dovish side, by further widening the gap between the assessment of fundamental developments and the monetary policy outlook," said UniCredit economist Harm Bandholz in a client note.
The dollar also dropped versus the British pound but was relatively steady against the yen.
