WASHINGTON (dpa-AFX) - The U.S. dollar climbed higher against major currencies on Wednesday after the Federal Reserve said it is likely to hike interest rates in March and signaled that it would then start reducing its asset holdings.
The Fed left interest rates unchanged at near-zero levels as widely expected but said the Federal Open Market Committee expects 'it will soon be appropriate to raise the target range for the federal funds rate.'
The Fed previously pledged to leave interest rates unchanged until labor market conditions have reached levels consistent with the FOMC's assessments of maximum employment.
Fed Chair Jerome Powell claimed during his post-meeting press conference that the central bank has 'quite a bit of room' to raise interest rates before it would harm the economy.
The central bank also said it would further reduce the pace of its bond purchases to $30 billion per month beginning in February, with the Fed saying it expects to end its asset purchase program by early March.
In a separate statement, the Fed outlined plans to significantly reduce the size of its balance sheet, saying it expects to start the reductions after it begins raising interest rates.
The Fed announcement overshadowed a report released by the Commerce Department showing new home sales in the U.S. surged much more than expected to a nine-month high in the month of December.
Despite the pullback by the broader markets, software giant Microsoft (MSFT) held on to a notable gain after reporting better than expected fiscal second quarter results and providing upbeat guidance.
The dollar index which measures the currency's strength against six major rivals, climbed to 96.48, gaining nearly 0.6%.
Against the Euro, the dollar strengthened to $1.1241 from around $1.1300.
The dollar was trading at $1.3465 against Pound Sterling, gaining from around $1.3500, and firmed to 114.78 yen, from 113.90.
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