Dollar hits one-month low after Fed revises rate hike outlook

By Dion Rabouin

NEW YORK (Reuters) - The dollar fell sharply on Wednesday after the Federal Reserve kept interest rates unchanged, but reduced its expectations for interest rate hikes in 2016 to two from four.

In a statement many investors regarded as more accommodating for looser policy than expected, the Fed noted that moderate U.S. economic growth and "strong job gains" would allow it to resume tightening monetary policy this year, but also said the economy continues to face risks from an uncertain global outlook.

The dollar tumbled after the statement's release and moved further downward against major currencies during Fed Chair Janet Yellen's press conference, touching new session lows against the euro, yen and Swiss franc.

The dollar index <.DXY>, which measures the greenback against a basket of major currencies, fell to a one-month low of 95.539 following the conclusion of Yellen's conference. The index stood at 96.837 immediately prior to the statement, sliding nearly 1.3 percent in the time between the statement's release and the end of the Fed chair's remarks.

"The policy statement seemingly upgraded the level of concern regarding global economic and financial developments," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington, in a note to clients.

"This was a surprise, especially in light of stability in global financial markets and in the recent rise in oil off of a 13-year low."

The euro reversed earlier losses and climbed to a new one-month high against the dollar following the Fed's afternoon statement. It was last up 1.05 percent at $1.1225.

Reaction to the statement also pushed the dollar to a one-month low against the Swiss franc , falling 1.2 percent to 0.9761 franc.

The dollar touched a one-week low against the yen , turning negative for the first time in the North American trading session after the FOMC statement. It was last down 0.75 percent at 112.61 yen.

The statement also gave a major boost to commodity-linked currencies like the Canadian , New Zealand and Australian dollars, all of which moved up more than 1.5 percent against their U.S. counterpart. The three currencies also gained from rising oil prices, which added to earlier gains after the FOMC statement.

"The Fed struck a very dovish tone, marking down its projected rate increase trajectory, while noting overall resilience in the U.S. economy and the absence of inflation pressures," said Brian Dolan, head market strategist at DriveWealth LLC in New Jersey. "This should be encouraging for risk sentiment and risk assets."

(Reporting by Dion Rabouin; editing by Chizu Nomiyama and G Crosse)

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