The euro soared against the dollar on Wednesday after the Federal Reserve kept interest rates unchanged and signaled it would take its time raising rates.
The common currency hit a 2 1/2 year high against the greenback following the decision as traders increased their bets that economic growth and borrowing costs will increase at a faster pace in Europe than in the U.S.
The euro was trading at $1.1725, its highest level since Jan. 15, 2015, when it traded as high as $1.1793.
The decision was widely anticipated, with expectations of a rate hike at just 3.1 percent. The central bank, however, laid the groundwork to begin winding down shortly the massive stimulus program it embarked on to rescue the economy from the financial crisis.
“The FOMC statement is basically setting the stage for a September beginning to QT,” said Peter Boockvar, chief market analyst at The Lindsey Group.
“While we’ve seen a slower rate of increase in the recent inflation stats, the Fed wasn’t that bothered. After acknowledging that headline and core inflation are currently running below 2%, they said ‘Inflation on a 12 month basis is expected to remain somewhat below 2% in the near term but to stabilize around the Committee’s 2% objective over the medium term.'”
The dollar index, which measures the dollar against a basket of currencies, fell 0.53 percent to 93.55 after the statement, following U.S. Treasury yields.
“The bond market rallied on the statement because it was being taken as dovish,” said David Schiegoleit, managing director of investments at U.S Bank Private Client Reserve. “I think that’s why you’re seeing the roll-off in the dollar.”
“The two are connected and are two ways of seeing the same thing.”
The dollar also fell against the yen to $111.42 yen, down 0.41 percent. The pound climbed against the dollar 0.49 percent to $1.3087.
Before the announcement, the dollar index was nearly flat before the announcement at 94.09. The euro was also relatively flat at $1.1647.
-Reuters and CNBC’s Angelica LaVito and Jeff Cox contributed to this report