By Sam Forgione
NEW YORK (Reuters) - The U.S. dollar inched higher against a basket of major currencies in volatile trading on Wednesday after the Federal Reserve hiked benchmark interest rates for the first time in nearly a decade and traders viewed the likely pace of future hikes as hawkish.
The U.S. central bank's policy-setting committee raised the range of its benchmark rate by a quarter percentage point to between 0.25 and 0.50 percent, ending a lengthy debate about whether the economy was strong enough to withstand higher borrowing costs.
The U.S. dollar seesawed after the Fed statement and remarks from Fed Chair Janet Yellen at a news conference before turning higher near the end of the U.S. trading session on the view that the Fed's implied pace of four quarter-point increases in 2016 was quicker than the market had expected.
While that pace of rate hikes was unchanged from the Fed's prior projections, analysts said that market expectations for fewer rate hikes next year led the dollar to gain slightly.
"The Fed is more hawkish than the market has been on where interest rates will be at the end of 2016," said Chris Gaffney, president of EverBank World Markets in St. Louis.
The Fed made clear this was a tentative start to a "gradual" tightening cycle and that in deciding its next move it would put a premium on monitoring inflation, which is mired below target.
While that initially hurt the dollar and led the euro to hit a session high of $1.10130, the dollar recovered as traders viewed the pace of rate hikes as hawkish overall. The euro was last down 0.24 percent against the greenback at $1.09070 >.
"Our takeaway is that the Fed has started the cycle, it's going to be a gradual cycle, but the markets had already priced for a far more dovish path than the Fed is signalling," said Vassili Serebriakov, currency strategist at BNP Paribas in New York.
Despite its modest recovery, the dollar failed to retrace the highs it hit shortly after the Fed decision. The dollar index <.DXY>, which measures the greenback against a basket of six major currencies, was last up 0.21 percent at 98.426 after hitting a more than one-week high of 98.558.
The dollar was last up 0.45 percent at 122.200 yen after hitting a one-week high of 122.430 >. The dollar was down 0.07 percent at 0.99065 Swiss franc >.
(Editing by Meredith Mazzilli and James Dalgleish)
