(New throughout, updates prices and market activity; adds
* Fed downplays weak Q1 economic growth in policy statement
* Dollar hits more than six-week high vs yen
* Euro falls below $1.09 vs U.S. dollar
By Sam Forgione
NEW YORK, May 3 The U.S. dollar rallied broadly
on Wednesday and hit more than six-week highs against the yen
after the Federal Reserve signaled it was still on track for two
more interest rate hikes this year.
The Fed kept interest rates unchanged, downplayed weak
first-quarter economic growth and emphasized the strength of the
labor market in its statement following the end of a two-day
The central bank also said consumer spending continued to be
solid, business investment had firmed and inflation has been
"running close" to its target.
The dollar rose by as much as 0.7 percent against the yen,
and hit 112.69 yen, the highest level since March 21, as the Fed
statement solidified expectations for a rate hike in June and
another in the second half of the year.
"The June hike looks pretty much alive," said Win Thin,
global head of emerging markets currency strategy at Brown
Brothers Harriman in New York.
The euro fell by as much as 0.4 percent against the dollar,
to a session trough of $1.0888 after the statement, after rising
as high as $1.0936 earlier. The dollar also jumped against the
Swiss franc, sterling and the Canadian dollar.
Even before the Fed statement, the dollar had hit more than
six-week highs against the yen as traders digested the
possibility of ultra-long U.S. bond issuance and
stronger-than-expected April U.S. services sector growth.
Investors were awaiting Friday's monthly U.S. non-farm
payrolls report for greater signs of the Fed's likely rate hike
trajectory through the end of the year. Economists polled by
Reuters expect U.S. employers to have added 185,000 jobs in
April, up from 98,000 in March.
The Fed statement "makes the Friday non-farm payrolls report
I think more important, because if that is disappointing then
the Fed is going to backpedal," said Axel Merk, president and
chief investment officer of Palo Alto, California-based Merk
Private employers expanded their payrolls by 177,000 jobs
last month, payrolls process ADP reported on Wednesday. While
that was the smallest gain since October, it roughly matched
expectations of economists surveyed by Reuters, who had forecast
a gain of 175,000 jobs.
The U.S. dollar index, which measures the greenback against
six major currencies but the majority of whose weighting is
against the euro, was last up 0.4 percent at 99.345.
(Additional reporting by Jemima Kelly in London; Editing by
David Gregorio and Leslie Adler)