By David Henry and Herbert Lash

NEW YORK (Reuters) – The dollar fell on Wednesday after the U.S. Federal Reserve moved to a hawkish monetary policy but without delivering a tougher surprise that might have added to its weeks-long momentum.

The dollar index, which had gained 3% since the start of the Russia-Ukraine war on Feb. 24 and 10% since May, fell as much as 0.6% on Wednesday as traders parsed Fed statements following a two-day meeting.

“There were no additional hawkish surprises,” said Erik Bregar of Silver Gold Bull Inc, adding that traders seemed to have been expecting too much more from the Fed. “That explains why some of these hawkish bets are being pared back a bit,” he said.

The dollar lost value to the euro and the British pound, both of which had been up earlier in the day on hope for a compromise in Russia and Ukraine peace talks.

The euro and pound both gained 0.7%, with the euro trading at $1.1032.

The Fed raised interest rates by the expected quarter of a percentage point and projected its policy rate would reach a range of 1.75% to 2% by the end of this year and 2.8% next year.

Strategists at Wells Fargo Securities called the Fed comments “very hawkish,” in a note to clients and said it should be good for the dollar going forward.

The decline in the dollar index was surprising and could reflect disappointment that the Fed rhetoric was not more hawkish, they said.

The Fed did project the equivalent of quarter-percentage-point rate increases at each of its six remaining policy meetings this year but that was in line with market expectations for rates.

Yields on 10-year U.S. Treasuries reached 2.2% and two-year yields rose to 1%, flattening the yield curve.

The Bank of England meets on Thursday and markets expect it to raise rates by another quarter point.

The Bank of Japan is expected on Friday to leave ultra-loose policy settings in place.

The dollar rose 0.4% on the Japanese yen and during the day touched 119.13 yen, the highest in more than five years.

The commodity-sensitive Australian dollar added 1.3% to $0.7288.

Bitcoin was last up 5% on the day to $41,186.

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Currency bid prices at 4:40PM (2040 GMT)

Description RIC Last U.S. Close Pct Change YTD Pct High Bid Low Bid

Previous Change

Session

Dollar index

98.3840 98.9280 -0.54% 2.844% +99.0820 +98.2910

Euro/Dollar

$1.1032 $1.0955 +0.71% -2.95% +$1.1047 +$1.0948

Dollar/Yen

118.7150 118.2900 +0.36% +3.13% +119.1150 +118.1700

Euro/Yen

130.97 129.57 +1.08% +0.50% +131.0500 +129.5400

Dollar/Swiss

0.9405 0.9414 -0.12% +3.08% +0.9460 +0.9391

Sterling/Dollar

$1.3142 $1.3045 +0.75% -2.82% +$1.3156 +$1.3036

Dollar/Canadian

1.2688 1.2766 -0.59% +0.38% +1.2777 +1.2681

Aussie/Dollar

$0.7288 $0.7198 +1.27% +0.28% +$0.7297 +$0.7181

Euro/Swiss

1.0376 1.0309 +0.65% +0.07% +1.0385 +1.0305

Euro/Sterling

0.8394 0.8398 -0.05% -0.07% +0.8429 +0.8384

NZ

Dollar/Dollar $0.6838 $0.6770 +1.06% -0.04% +$0.6844 +$0.6743

Dollar/Norway

8.8920 9.0145 -1.38% +0.92% +9.0090 +8.8720

Euro/Norway

9.8111 9.8725 -0.62% -2.02% +9.8809 +9.7780

Dollar/Sweden

9.4100 9.6043 -1.36% +4.35% +9.6338 +9.3999

Euro/Sweden

10.3822 10.5256 -1.36% +1.45% +10.5464 +10.3819

(Reporting by Joice Alves; Editing by Elaine Hardcastle, Kirsten Donovan, Jonathan Oatis, William Maclean)