(Updates prices, adds analyst comments)
* Dollar hits 10-month high vs yen of 116.71 yen
* Fed's median outlook for rates rises to three hikes in
* Dollar index hits nearly three-week high of 101.960
* Caution in Fed statement limits dollar's gains
By Sam Forgione
NEW YORK, Dec 14 The U.S. dollar hit its highest
level against the yen in 10 months and gained against other
major currencies on Wednesday after the Federal Reserve raised
interest rates for the first time this year and signalled a
faster pace of increases in 2017.
The dollar rallied about 1.3 percent against the yen
to 116.71 yen, its highest since Feb. 8, after the U.S. central
bank raised the target federal funds rate by 25 basis points to
between 0.50 percent and 0.75 percent. The Fed's median outlook
for rates rose to three quarter-point increases in 2017 from two
as of September.
The Fed's last rate increase was a year ago, when it moved
rates from the zero lower bound reached during the 2007-2009
All 120 economists in a recent Reuters poll had expected
such a rate hike. Of more significance to markets were new
forecasts for future rates, as well as Fed Chair Janet Yellen's
press conference, which began at 2:30 p.m.
Analysts said just one additional rate increase projected
into next year, combined with a cautious tone in the policy
statement, had boosted the dollar without sending it excessively
"The rise in the dollar is really being driven by the shift
from two to three hikes next year, which obviously isn't priced
by the market," said Ian Gordon, FX strategist at Bank of
America Merrill Lynch in New York.
"The overall tone of the statement is generally still
somewhat cautious," Gordon added. He cited the Fed's reference
to risks to the economic outlook as having been roughly
balanced, as well as discussion of the shortfall in inflation,
The euro fell about 0.9 percent against the dollar to
a session low of $1.0534, easing from a six-day high of $1.0669
touched before the Fed decision. The dollar index, which
measures the greenback against a basket of six major currencies,
hit a nearly three-week high of 101.960 and was last up 0.8
percent at 101.86.
Sterling was down 0.5 percent against the greenback
"It's an argument for modest dollar strength, but not
necessarily in and of itself going to change the bigger
picture," said Shahab Jalinoos, global head of FX strategy at
Credit Suisse in New York, on the Fed decision.
"The game was higher U.S. yields, which has been in place
for some time, a higher dollar against core defensive currencies
like the euro and the yen, and that trend persists."
(Reporting by Sam Forgione; Editing by Bill Trott and James