Dollar recovers as markets look past Fed decision

NEW YORK - The dollar traded mostly higher Wednesday, regaining its footing a day after a Federal Reserve decision to keep interest rates at near-zero levels.

The euro fetched 1.3735 dollars in New York at 2200 GMT Wednesday, down from 1.3774 late Tuesday. It had climbed to 1.3818 dollars in early trading, its highest level since early February.

The dollar was also up at 90.33 yen from 90.28 Tuesday.

The euro initially climbed against the greenback as investors moved to the slightly higher yielding currency after the Fed maintained its benchmark rate at virtually zero percent but the single European unit fell back amid renewed concerns over the Greek debt crisis, analysts said.

The Fed's "insistence on maintaining a dovish stance knocked wind out of the dollar bulls who had been hoping for a move to a more neutral posture given the improvement in the US economy," said Boris Schlossberg, director of currency research at Global Forex Trading.

"However, it is now clear that the Fed will not even consider the possibility of tightening until it sees tangible proof of sustainable job growth, preferring for the time being to err on the side of caution," he said.

After a one-day meeting Tuesday, the Fed's policy body voted 9-1 to keep the federal funds rate -- at which banks charge each other for loans -- at a zero to 0.25 percent range.

The Federal Open Market Committee (FOMC) expected to hold the "exceptionally low" rate "for an extended period" -- reiterating its standard guidance since it slashed rates to record lows in December 2008 in a bid to jolt the world's largest economy from its worst recession in decades.

The euro came under pressure amid persistent market concerns over the lack of details from a EU plan to make emergency loans available to Greece -- if needed -- to shield the country from bankruptcy.

The absence of details prompted Greece to keep open the option of reaching out to the International Monetary Fund, and its mountain of debt remains a big concern, analysts said.

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The Australian dollar is moving higher in forex trading today as gold prices gain. Gold prices are moving higher as the Fed expresses its belief that the labor market is stabilizing. The Aussie is following suit in currency trading on the FX market.

The Australian dollar is commodity currency, which means it often moves in tandem with commodity prices. Aussie is sensitive to gold because Australia relies on gold for a sizable chunk of its economy. As gold prices rise, they help support Australian economic growth, and help support the Aussie in currency trading.

With gold heading higher, and with U.S. stock futures pointing to a higher open, it is little surprise that investors are looking for something a bit riskier as well. Therefore, turning to the Aussie, with its higher returns, makes sense in forex trading. At least for now.

Currency trading on the FX market should consider that the sterling is dropping as traders consider the latest warning from Moody's. The credit rating agency issued warnings that the U.S., U.K., France and Germany could face ratings downgrades soon with regard to their sovereign debt.

The countries that are considered most vulnerable right now are the U.S. and the U.K. And Britain is considered even more vulnerable than the U.S., reports Boris Schlossberg in FX360:

Although both Anglo-Saxon economies face serious challenges in managing their fiscal deficit problems, the UK is far more vulnerable that the US to a potential downgrade because of the relatively small size of capital markets and high dependence of its economy on the finance sector for growth.

It is little surprise that this news is resulting in a drop by the sterling in forex trading against the U.S. dollar. Added to the fact that the Bank of England might start quantitative easing again, and the fundamentals for Britain look shaky indeed.

The euro is heading higher in forex trading on the currency market today as things improve in terms of global economic data. Helping the euro right now is the fact that U.S. retail sales showed improvement in February. This has many speculating that the U.S. really is on the road to recovery, and risk appetite is returning.

Also helping the euro is the fact that the euro zone nations are putting together plans to help prevent another sovereign debt debacle like Greece. And concerns about the Greek financial contagion are abating. GFT's Boris Schlossberg reports in FX360 on events in the euro zone:

Euro continued its short covering rally into the weekend, clearing the key 1.3740 level after several European officials lent their support to the creation of a European Monetary Fund that would be able to deal more effectively with future funding crises of its member nations.