The dollar index slipped to one-week low of 79.711 after the Fed's decision on Wednesday and last stood at 79.891, flat from late US levels, with a six-week low of 79.568 seen as an immediate support. While the spectre of printing more money weighs on the dollar, how much that stimulus will help the US economy is an open question, with some market players expecting diminishing impact from the Fed's repeated quantitative easing.
"I can't remember shares falling on the day of announcement of previous QE. US bonds also fell even though what the Fed will do is to improve the market's supply-demand dynamics," said Daisuke Uno, chief strategist at Sumitomo Mitsui Bank. As the dollar wilted, the euro hit one-week high of $1.3098 on Wednesday and last stood at $1.3067, little changed on the day.
The euro had additional support after former Italian prime minister Silvio Berlusconi, who roiled the nation last week by abruptly withdrawing support for Prime Minister Mario Monti's technocrat government, offered to stand back and suggested Monti could become the centre-right's candidate.
The Australian dollar hit two-month high of $1.0585 on Wednesday and last stood at $1.0550, flat on the day, while the British pound also hit six-week high of $1.6173 before stabilising at around $1.6140. The yen, however, bucked the trend and weakened against the dollar, as market players ramped up selling ahead of potentially yen-negative events in coming days.
The dollar rose 0.5 percent to 83.59 percent, edging near its March high of 84.187 yen. The yen also fell to its weakest level in 1 1/2 years against sterling, which fetched 134.88 yen. The Bank of Japan's Tankan survey is out on Friday and will likely show sentiment among manufacturers deteriorated in the three months to December, adding to calls for bolder action from the BOJ to stimulate the world's third biggest economy. The BoJ meeting will take place after Sunday's election which looks set to see the opposition Liberal Democratic Party clinch a resounding victory. LDP leader Shinzo Abe has been pushing the BOJ for more powerful monetary stimulus.