Dollar rises as US Fed tapers bond-buying program

The dollar Wednesday rallied against the euro and the yen after the US Federal Reserve announced plans to scale back its bond-buying program in January.

At 2200 GMT, the euro bought $1.3680, down from $1.3765 Tuesday.

The dollar advanced to 104.20 yen from 102.63, while the euro also rose against the Japanese currency, to 142.56 yen from 141.28.

The Fed said it would scale back its bond-buying program from $85 billion to $75 billion starting in January due to conditions "consistent with growing underlying strength in the broader economy," according to a statement by the Fed's Federal Open Market Committee.

But the move to taper the purchases was accompanied by a decision to extend the likely period of ultra-low interest rates

Omer Esiner, chief market analyst at Commonwealth Foreign Exchange, said the Fed's "overall cautious statement... has largely limited the greenback's ability to rally."

Still, the fact that the US central bank has begun a process toward "monetary policy normalization" stands in contrast to the stances of central banks in Europe and Japan and "should be positive for the dollar," Esiner said.

Nick Bennenbroek, head of currency strategy at Wells Fargo Securities, said the currency market's reaction was tempered somewhat by the Fed's pledge to keep interest rates very low for longer.

"Nonetheless, we think today's announcement highlights the growing divergence between the outlook for US monetary policy and some of the other major central banks and, as a result, we believe it is consistent with US dollar strength," Bennenbroek said.

The pound rose against the dollar, advancing to $1.6381 from $1.6264 Tuesday.

The dollar rose to 0.8938 Swiss franc from 0.8847.