NEW YORK (AP) — The dollar declined ahead of an expected announcement from the Federal Reserve this afternoon that interest rates are likely to remain near zero.
Higher interest rates can support a currency as investors transfer funds in search of better returns.
In midday trading Wednesday, the 16-nation euro rose to $1.4836 from $1.4702 late Tuesday, while the British pound gained to $1.6569 from $1.6402. Meanwhile, the dollar climbed to 90.91 Japanese yen from 90.32 yen.
The Bank of England and European Central Bank make announcements on Thursday. Economists expect the ECB to hold its key interest rate at 1 percent, while the U.K.'s central bank is expected to keep rates at 0.5 percent for an eighth straight month.
Traders have lately been borrowing the low-yielding dollar to buy assets that give better returns, a market play called a "carry trade." That keeps the value of the buck lower, as such trade weighed down the yen earlier this decade.
If the Fed later this afternoon makes any changes in language in its statement that the market interprets as a signal of intent to hike interest rates sooner than summer 2010, that could fuel the greenback.
The announcement is expected at 2:15 p.m. EST.
"There is an outside chance that the Fed changes the language of its statement," said Michael Woolfolk, senior currency strategist at the Bank of New York Mellon.
Meanwhile, a report Wednesday morning from the Institute for Supply Management, a private trade group, signaled continuing, if slow, growth in the service sector last month.
That helped send stock markets higher as traders shunned the safe, low-yielding dollar.
Over the past year, the dollar and stocks have tended to trade inversely, with better-than-expected economic developments or corporate data benefiting equities. Information signaling economic weakness, freeze-ups in credit markets and problems in the financial sector have tended to boost the dollar as investors sought safety in its access to super-safe U.S. Treasurys.
In other midday trading Wednesday, the dollar dropped to 1.0180 Swiss francs from 1.0274 francs, and slipped to 1.0659 Canadian dollars from 1.0677 late Tuesday.
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