Hot Now: Dollar weakens

TOKYO: The dollar licked its wounds at 13-month lows against a basket of major currencies on Thursday after the U.S. Federal Reserve´s more cautious wording on the inflation outlook bolstered views it might not hike interest rates again this year.

While the Fed said it expected to start shrinking its massive holdings of bonds "relatively soon", a phrase taken by many to mean an announcement in September, the central bank also noted weakness in U.S. inflation more explicitly than before.

That recognition of soft inflation from the Fed, which had in the past judged the weakness as transitory, added to expectations that the Fed´s plan to raise interest rates a third time this year might be delayed.

"Even though the U.S. economy is strong, inflation is weak. Markets want to see more signs of inflation before they are convinced about future rate hikes," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.

"I also suspect people want to take stock of the impact of the likely reduction of the Fed´s balance sheet," she added. The dollar´s index against a basket of six major currencies slumped to 93.26.