The dollar fell sharply versus the euro and sterling ahead of the latest Federal Reserve interest rate decision, but was able to recover some of its big losses after the Fed noted that the pace of economic contraction appears to be slowing.
The policymaking arm of the Federal Reserve voted unanimously to keep the target range between 0 and 0.25 percent, in an announcement that was largely unchanged from the March decision.
Although the economic outlook has improved modestly since the March meeting, partly reflecting some easing of financial market conditions, economic activity is likely to remain weak for a time, the statement read.
While consumer spending rebounded in the first three months of the year, a report from the Commerce Department released on Wednesday showed that its advance reading on first quarter gross domestic product contracted by much more than expected.
The report showed that GDP decreased at an annual rate of 6.1 percent in the first quarter compared to a 6.3 percent drop in the fourth quarter. Economists had been expecting a more modest decline of about 4.7 percent.
The dollar plunged in early dealing versus the euro prior to the rate decision, falling to a nearly 2-week low of 1.3383. With the loss, the dollar extended yesterday's decline, moving back to early April's range.
Eurozone economic sentiment improved in April, for the first time since May 2007, from a record low, a survey conducted by the European Commission showed Wednesday.
Economic sentiment rose to 67.2 in April from a revised reading of 64.7 in March, the first increase since May 2007. The index stood above the expected reading of 65.6.
Wednesday, the German government said the economy will grow 0.5% in 2010, benefiting from stimulus measures and recovery of exports.
However, the economy will shrink 6% this year, the worst contraction since the World War II and sharper than a 2.25% fall predicted in January.
The dollar also remained on the defensive versus the sterling as gains on Wall Street fueled risk appetite. The dollar slipped to a nearly 2-week low of 1.4813, but was stable by mid-day. On a longer-term basis, the dollar is little changed in April, having found its footing after a mid-month retreat to 1.5000.
The dollar surged higher versus the yen following the Fed rate call, soaring to 98 after coming under heavy pressure earlier in the week. On Tuesday, the dollar fell to a 2-month low of 95.60, but has since battled back.
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