NEW YORK (Reuters) - The dollar gained on Wednesday in choppy trading after the Federal Reserve raised U.S. interest rates as expected for the eighth time, flagged more rate hikes and signalled the end of the "accommodative" policy era.
The greenback fell briefly against the euro and yen immediately after the Fed released its statement, then resumed its climb as investors digested the statement.
Fed policymakers boosted the benchmark overnight lending rate by a quarter of a percentage point to a range of 2.00 percent to 2.25 percent. The central bank policy statement also omitted the word "accomodative."
The dollar's brief stumble showed that some investors believe the Fed's policy-setting Federal Open Market Committee (FOMC) will start raising rates more gradually than in the past year. But its later gains showed that investors also saw signals in the statement that rates will rise enough to further strengthen the U.S. currency.
The statement said the Fed still foresees another rate hike in December, three more next year, and one increase in 2020. It also said it sees three more years of economic growth.
"The removal of the term 'accommodative' does signal that the neutral rate is on the radar and the FOMC will need to justify restrictive monetary policy in the coming year, a somewhat dovish development in our view," said Marvin Loh, senior global market strategist, at BNY Mellon in Boston.
Mark McCormick, head of North American FX strategy, at TD Securities in Toronto agreed, saying the absence of "accommodative" in the statement was the reason for the initial fall in the dollar.
In his press briefing, Fed Chairman Jerome Powell clarified that the word "accommodative" was removed as a sign monetary policy is proceeding in line with expectations.
In afternoon trading, the dollar index <.DXY>, which measures the U.S. unit against six major currencies, was up 0.2 percent at 94.287 <.DXY>. Before the Fed decision, it had hit a one-week high of 94.40.
Powell noted that the dollar has only partly recovered the decline it had in 2017. Some analysts said this suggested that the Fed believes the currency's uptrend is still in place.
Against the yen, the dollar rose slightly at 112.67 yen <JPY=>.
The euro briefly hit session highs versus the dollar after the Fed decision, before falling to $1.1747 <EUR=>, down 0.2 percent. Some market players believe the euro's outlook has brightened and investors are positioning for a rebound.
"The pieces are steadily falling into place for a more sustained rebound in the single European currency, including more favourable capital flow dynamics and more balanced euro positioning," said Wells Fargo in a research note.
(GRAPHIC - World FX rates in 2018: http://tmsnrt.rs/2egbfVh)
(Reporting by Gertrude Chavez-Dreyfuss; Editing by Cynthia Osterman and David Gregorio)
