Dollar retreats as post-Fed meeting glow fades

NEW YORK (Reuters) - The dollar weakened against a basket of currencies on Thursday, pulling back from a more than two-week peak as bets stoked by the Federal Reserve signaling it may raise interest rates in December abated.

The dollar index <.dxy>, which tracks the greenback against six major currencies, was down 0.29 percent at 92.238.

"It's sort of interesting when you think about how hawkish the Fed was yesterday. It is just telling in terms of where the sentiment is for the U.S. dollar," said Erik Nelson, currency strategist at Wells Fargo Securities in New York.

After concluding a closely watched two-day policy meeting on Wednesday, the Fed left interest rates unchanged as expected but signaled it still expects one more increase by the end of the year, despite a recent bout of low inflation.

The U.S. central bank also said it would start to reduce its $4.2 trillion worth of bond holdings that ballooned through three rounds of quantitative easing.

"Yes, the Fed has just told us they are going to continue tightening policy, but the likes of the European Central Bank, the Bank of Canada and even the Bank of England now have also told us that they are going to start normalizing policy," said Nelson.

"It's clearly a contrast to where we were a year or two ago when the Fed was the only game in town."

On Thursday, ECB President Mario Draghi said monetary policy is not an appropriate tool to address financial imbalances but offered no fresh insight on the central bank's asset purchase program.

"Anything he says that doesn't sound dovish, the market will take it as hawkish," said Paresh Upadhyaya, director of currency strategy at Amundi Pioneer Asset Management in Boston.

The euro was up 0.35 percent at $1.1933.

Sterling firmed against the dollar, with traders hopeful that a much-anticipated speech from Prime Minister Theresa May on Friday would signal she wants a "soft" exit for Britain from the European Union.

Norway's crown rose against the dollar and euro after the country's central bank kept its key policy rate unchanged at 0.50 percent, but said a rise was likely to come earlier than previously expected, albeit still more than a year away.

(Reporting by Saqib Iqbal Ahmed; Additional reporting by Richard Leong; Editing by Meredith Mazzilli and Lisa Shumaker)