FOREX-Dollar retains strength against peers after Fed rate decision

By Chibuike Oguh

NEW YORK, May 7 (Reuters) - The U.S. dollar remained slightly stronger against major currencies including the yen and the euro on Wednesday after the Federal Reserve left interest rates unchanged, in line with market expectations.

The Fed kept its benchmark interest rate steady in the 4.25%-4.50% range, but said that the risks of higher inflation and unemployment had risen and that the U.S. economic outlook remains uncertain.

"They were a little more hawkish than a lot of the market expected, and they didn't really change or water down any of the views on inflation being above average or the jobs market selling at a low level," said Marvin Loh, senior global market strategist at State Street in Boston.

"I still think we're in an extended hold period until data tells them that they need to do something and/or we get a lot more trade clarity," Loh added.

The greenback was up 1% versus the yen at 143.840 JPY=, breaking a three-day falling streak, with Japanese markets reopening after a two-day holiday.

During his subsequent press conference, Fed Chair Jerome Powell said the central bank cannot make preemptive policy decisions until there is clarity about where the economy is headed.

The U.S. dollar was up 0.09% against the Swiss franc CHF= in choppy trading at 0.82210 franc. On Monday, it hit its lowest since January 2015 of 0.8032.

"The statement had only small changes and the theme which we expected - which is, 'The Fed is feeling the tensions between the two sides of its mandate,'" said Vassili Serebriakov, FX strategist at UBS in New York. "The FX market is well aware of this and that probably explains the lack of initial reaction."

President Donald Trump suggested on Wednesday that China initiated upcoming senior-level trade talks between the two countries and said he was not willing to cut U.S. tariffs on Chinese goods to get Beijing to the negotiating table.

Treasury Secretary Scott Bessent and chief trade negotiator Jamieson Greer will meet China's economic tsar, He Lifeng, in Switzerland on Saturday for talks, which could lead to a potential thawing of trade tensions.

The euro EUR= was down 0.44% at $1.131650, snapping three straight session of gains.

German conservative leader Friedrich Merz was elected chancellor by parliament on Tuesday in a second round of voting after an unprecedented defeat on the first attempt.

The Bank of England will likely cut interest rates on Thursday. The pound sterling GBP=D3 was down 0.52% to $1.3310 but up 0.21% to 0.85080 against the euro EURGBP=EBS.

The Taiwan dollar TWD=TP has steadied after surging against the greenback since Trump's April 2 announcement of sweeping tariffs on trade partners.

The Chinese yuan CNH=D3 weakened 0.22% against the greenback to 7.227 per dollar as China announced a long-awaited rate cut.