Dollar holds losses after US Fed Reserve hikes interest rate, signals pause

 The dollar fell on Wednesday after the Federal Reserve raised interest rates by a quarter of a percentage point and signaled it may pause further increases.

In an overt shift, the central bank no longer said it "anticipates" further rates will be needed, only that it will watch incoming data to determine if more hikes "may be appropriate."

The pause would give officials time to assess the fallout from recent bank failures, wait on the resolution of a political standoff over the U.S. debt ceiling, and monitor the course of inflation.

The Fed did not explicitly commit to ending its hiking cycle, helping to lift the dollar off session lows reached immediately after the central bank released its meeting statement.

"Some people might have been expecting some sort of explicit pause. I don't think that was realistic but this is what a pause sounds like in reality," said Adam Button, chief currency analyst at ForexLive in Toronto.

"The name of the game now is watching economic data and trying to find signs of weakness in the U.S. economy or stubborn strength."

The dollar index was last down 0.42% on the day at 101.42, after hitting 101.05, the lowest since April 26. The euro gained 0.46% at $1.1047 after reaching $1.1093. It is holding just below a 13-month high of $1.1096 reached last week. The dollar also fell 1.02% against the Japanese yen to 135.15.

The April jobs report due on Friday is this week's main economic focus. The dollar briefly bounced after data earlier on Wednesday showed U.S. private employers boosted hiring in April with strong demand in the leisure and hospitality industry, though wage growth slowed.

Other data on Wednesday showed the U.S. services sector maintained steady growth in April as new orders increased amid a surge in exports, but businesses continued to face higher prices for inputs, indicating that inflation could remain elevated.

Consumer price inflation due next week will also offer fresh clues on whether inflation is continuing to ease.

"The Fed continues to walk the tight rope, and that is they're trying to strike a balance between their inflation fighting credibility while trying to engineer a soft landing," said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.

The European Central Bank on Thursday is expected to hike rates by 25 basis points, with a 50 basis point increase also possible but seen as a low probability.