The U.S. dollar rose on Wednesday after the Federal Reserve left interest rates unchanged but did not rule out another hike as it acknowledged the economy's unexpected resilience despite the central bank's aggressive tightening launched more than a year ago.
The dollar index was last up 0.09% at 106.76. It has traded sideways since hitting an almost one-year high of 107.34 in early October on the back of a sharp rise U.S. bond yields driven by strong economic growth.
Against the yen, the dollar dropped 0.54% to 150.85. The currency pair typically tracks movements in U.S. two-year Treasury yields, which fell 6.9 basis points to 5%.
Fed officials, in a policy statement after a two-day meeting, unanimously agreed to leave the benchmark overnight interest rate in the 5.25%-5.50% range where it has been since July.
The Fed's latest statement noted that with job gains still "strong" and inflation still "elevated," the central bank continues to consider "the extent of additional policy firming that may be appropriate to return inflation to 2% over time."
That said, U.S. interest rate futures have added to bets that the Fed is done raising its policy rate and will start cutting rates by June next year. Bets on a rate hike in December and January have been pared back to 19% and 30%, respectively, down from 28% and 39% late on Tuesday.
"While a further hike, as signaled by the September 'dot plot' remains possible, given the resilience of the labor market and upside risks to the inflation outlook, the longer the FOMC remain on pause, the slimmer the already minimal chances of such action become," said Michael Brown, market analyst, at TraderX in London.
"Nevertheless, the 'higher for longer' policy stance remains in place, with markets seemingly premature in fully pricing the first 25 bp cut by next July."
In other currencies, the euro fell 0.3% against the dollar to $1.0547 following the Fed's statement and after data on Tuesday showed a fall in euro zone growth and inflation.
Sterling slid 0.4% versus the dollar to $1.2111.