September 27, 2018 / 4:31 AM / in 25 days

FOREX-Dollar steadies as lift from Fed rate hike wanes

(Adds details and quotes, updates prices)

* Dollar steadies after rising modestly on Fed’s rate hike

* Fed’s rate hike projections as expected, limits lift for dollar

* Fall by Treasury yields reduces support for greenback

* Graphic: World FX rates in 2018 tmsnrt.rs/2egbfVh

By Shinichi Saoshiro

TOKYO, Sept 27 (Reuters) - The dollar steadied against its peers on Thursday as a brief boost from the latest U.S. Federal Reserve interest rate hike faded, with lower U.S. Treasury yields reducing support for the greenback.

The dollar index against a basket of six major currencies inched up 0.1 percent to 94.293, adding to modest gains made overnight.

The greenback was little changed at 112.73 yen, having slipped from a two-month peak of 113.145 brushed on Wednesday.

The euro was up 0.1 percent at $1.1750 after declining 0.2 percent the previous day.

As expected, the Fed raised interest rates for the third time this year on Wednesday. It still foresees another rate hike in December, three more next year, and one increase in 2020.

It also dropped a reference in its statement to the word “accommodative”, although Fed Chairman Jerome Powell later said policy was still accommodative. The Fed has gradually raised rates since late 2015 from a near-zero level.

Long-term U.S. Treasury yields declined following the Fed’s tightening, pulling back from four-month highs of 3.11 percent scaled earlier in week, with some investors thought to have wagered the Fed would hint at faster monetary tightening.

“The Fed meeting did not provide strong direction for currencies. This is because policymakers’ economic views and their outlook on rate hikes through 2020 were mostly as expected,” said Junichi Ishikawa, senior FX strategist at IG Securities.

“Meanwhile, the dollar has gone on the defensive against the yen due to declining Treasury yields and weaker equities.”

Wall Street shares reversed earlier gains and ended slightly lower on Wednesday. Stocks in Asia followed suit on Thursday, with Japanese and Chinese equities suffering modest losses.

“The market has suddenly found itself in the doldrums with the Fed’s rate hike out of the way and with impact from trade tension woes receding,” said Koji Fukaya, president of FPG Securities in Tokyo.

“The question going forward is whether the recent willingness by investors to take on more risk continues. The Fed did not sound particularly aggressive towards rate hikes and this should bode well for equities, in turn keeping the dollar in check.”

The dollar index had scaled a 13-month high in mid-August, drawing safe-haven demand as trade-related tensions buffeted riskier currencies. The index has since fallen about 2.8 percent from the peak climbed last month.

The pound edged down 0.1 percent to $1.3172.

Emerging market currencies such as the Mexican peso and the South African rand held gains after rising overnight, relieved that the Fed’s projected path of rate increases were in line with expectations.

MSCI’s index for emerging market currencies extended overnight gains and was last up 0.2 percent. (Reporting by Shinichi Saoshiro; Editing by Kim Coghill)

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