Dollar fell against the Japanese yen and euro on Wednesday as the Federal Reserve remained cautious on the U.S. economy and reiterated its pledge to keep its ultra low interest rates for an extended period.

Fed kept the funds rate within the 0-0.25% range as widely expected and said financial conditions became less supportive on growth on balance, largely reflecting developments abroad. Fed added that prices of energy, other commodities declined, underlying inflation trended lower and inflation would likely to be subdued for some time. Fed said vote on policy was 9-1 with Hoenig dissenting, citing continued pledge of low rates could lead to imbalances.

Versus the Japanese yen, the greenback remained under pressure throughout the day on active cross buying in yen and the pair fell to 89.99 after the release of much weaker-than-expected U.S. new homes sales data, which dropped by 32.7% in May to record low of 300,000 unit annual rate versus the forecast of a decrease of 18.7% and downwardly revised reading of 446,000 in May. The pair fell further to an intra-day low of 89.73 after FOMC's rate decision.

Despite euro's recovery fm Asian low of 1.2244 to 1.2306, the single currency fell sharply at NY opening and hit an intra-day low of 1.2209 after the release of poor U.S. housing data. However, euro took a U-turn on active short-covering ahead of FOMC meeting and rallied to 1.2344 after FOMC's rate decision was announced due to dollar's broad-based weakness. Cross-buying in euro also lifted price as eur/jpy rebounded from 109.89 to 111.14 while eur/chf recovered from a fresh lifetime low of 1.3545.

On economic front, German Gfk index in July came in at 3.5 versus the economists' expectation of 3.3 n the previous reading of 3.5. German services and manufacturing PMI in June was 54.6 and 58.1 respectively.

In other news, the minutes of the BOE's June 9-10 meeting showed the Monetary Policy Committee was split 7-1 on its decision to leave rates unchanged this month after Andrew Sentance called for a 25 basis point rate rise. This was the first call for a UK rate rise since August 2008 as economists expected another unanimous decision. Cable surged above 1.4900 due to the unexpected vote outcome and the pair rose further to 1.4943 after the release of U.K. CBI trade data which came in at -5.0 in June versus the reading of -18.0 in May. Although sterling retreated from said 1.4943 high to 1.4850 in NY morning, renewed buying interest there lifted price again and cable extended recent upmove to a high of 1.4975 in tandem with euro due to dollar's broad-based weakness after FOMC rate announcement.

Economic data to be released on Thursday include: New Zealand GDP, Japan CSPI , Trade balance, EU Industrial orders, U.S. Durable goods.