By Sam Forgione
NEW YORK, April 27 (Reuters) - The U.S. dollar erased a brief rally and retraced modest losses against the euro on Wednesday, hitting a nearly one-week low against the currency in the process, after a Federal Reserve statement reinforced expectations for just two interest rate increases this year.
The U.S. central bank held interest rates unchanged and, while it left the door open to a hike in June, its statement implied it was in no hurry to follow on from its December rate rise.
While the Fed added that global economic headwinds remained on its radar, it removed a specific reference from its last policy statement to the risks they posed, a move analysts viewed as slightly more hawkish.
Analysts said the dollar initially rallied against the euro on the removal of the reference to global risks, but the statement was not a decisive enough change from March's dovish statement to sustain that rally. The Fed projected two quarter-point rate hikes this year in March, half the number seen in December.
"The comments did not change the direction of the dollar because the two rate hikes by the Fed remain intact," said Minh Trang, senior currency trader at Silicon Valley Bank in Santa Clara, California.
The U.S. dollar index, which measures the greenback against a basket of six major currencies, was last down 0.11 percent at 94.474. That level was roughly unchanged from where the index stood before the Fed statement.
The euro turned slightly negative against the dollar and hit a session low of $1.1274 immediately after the statement, but quickly retraced gains and hit a six-day high of $1.1361. The euro was last up 0.12 percent at $1.1312.
The dollar remained slightly higher against the yen, or roughly unchanged from before the Fed statement. The dollar was last up 0.12 percent against the yen at 111.40 yen after briefly touching a session high of 111.75 yen immediately after the statement.
Analysts said uncertainty over a Bank of Japan policy statement due on Thursday kept the dollar's activity against the yen muted. The central bank is expected to increase its stimulus measures in a bid to weaken the yen.
"People are generally trying not to overreact (to the Fed) when you could have big news coming out" in Japan, said Stephen Simonis Sr., independent analyst for FXDD Global in Jersey City, New Jersey. (Reporting by Sam Forgione; Additional reporting by Jemima Kelly in London; Editing by Paul Simao and Meredith Mazzilli)
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