By Karen Brettell

NEW YORK, May 4 (Reuters) - The dollar fell to a one-week low against a basket of currencies on Wednesday after Federal Reserve Chairman Jerome Powell played down the prospect of a 75 basis point rate hike, even as he said the U.S. central bank will act aggressively to stamp out inflation.

Powell said in a press conference following the Fed’s policy statement that the U.S. central bank is not actively considering a 75 basis point increase, but that additional 50 basis point jumps should be on the table for the next couple of meetings.

It came after the Fed raised its benchmark overnight interest rate by 50 basis points, the biggest increase in 22 years, in a widely expected decision.

“The market was pricing in essentially a 50/50 chance that you see a 75 basis point hike by July, between June and July, and so I think the most important takeaway here that I think the market was really fixated on, was whether or not a 75 basis point hike is on the table, and he (Powell) basically pushed back on that,” said Mazen Issa, senior fx strategist at TD Securities in New York.

The dollar index =USD dropped sharply after Powell’s comments, falling to a one-week low of 102.48, before retracing back to last be at 102.62, down 0.76% on the day.

The U.S. central bank also said that its $9 trillion balance sheet would be allowed to decline by $47.5 billion per month in June, July and August and the reduction would increase to as much as $95 billion per month in September.

Investors have been evaluating whether the rally that sent the dollar index it to its highest level in 20 years last week has much further room to run at least in the short-term, with much of the Fed’s expected hawkishness already priced into the market.

However, the Fed is expected to tighten policy more than peers. Europe, for example, is struggling from weaker growth and energy disruptions due to sanctions imposed on Russia after its invasion of Ukraine.

The euro EUR=EBS rose to $1.0606, up 0.82% on the day, and is up from $1.0470 on Thursday, which was the lowest since January 2017.

The U.S. dollar has also benefited from safe-haven flows as COVID-19 restrictions in China trigger concerns about global growth and new supply chain disruptions.

Beijing shut scores of metro stations and bus routes and extended COVID-19 curbs on many public venues on Wednesday, focusing efforts to avoid the fate of Shanghai, where millions have been under strict lockdown for more than a month.

The Aussie dollar outperformed for the second day, after the Reserve Bank of Australia on Tuesday raised its cash rate by a surprisingly large 25 basis points to 0.35%, the first hike in over a decade, and flagged more to come as it pulls down the curtain on its massive pandemic stimulus.

The Aussie AUD=D3 gained 2.03% to $0.7241.

U.S. data on Wednesday showed that private employers hired the fewest workers in two years in April amid persistent labor shortages and increasing costs, which are hitting small businesses the hardest.

This week's major U.S. economic release will be the government's jobs report for April released on Friday.

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Currency bid prices at 3:38PM (1938 GMT) Description

RIC

Last

U.S. Close Pct Change

YTD Pct

High Bid

Low Bid

Previous

Change

Session

Dollar index

=USD

102.6200

103.4400

-0.76%

7.272%

+103.6300 +102.4800 Euro/Dollar

EUR=EBS

$1.0606

$1.0519

+0.82%

-6.71%

+$1.0627

+$1.0507 Dollar/Yen

JPY=EBS

129.0300

130.1300

-0.83%

+12.10%

+130.3700 +128.6200 Euro/Yen

EURJPY=

136.87

136.92

-0.04%

+5.03%

+137.4200 +136.6200 Dollar/Swiss

CHF=EBS

0.9733

0.9788

-0.62%

+6.64%

+0.9852

+0.9725 Sterling/Dollar GBP=D3

$1.2599

$1.2496

+0.90%

-6.77%

+$1.2609

+$1.2453 Dollar/Canadian CAD=D3

1.2753

1.2842

-0.67%

+0.88%

+1.2853

+1.2730 Aussie/Dollar

AUD=D3

$0.7241

$0.7096

+2.03%

-0.40%

+$0.7252

+$0.7089 Euro/Swiss

EURCHF=

1.0322

1.0295

+0.26%

-0.44%

+1.0376

+1.0285 Euro/Sterling

EURGBP=

0.8417

0.8418

-0.01%

+0.20%

+0.8449

+0.8404 NZ

NZD=D3

$0.6530

$0.6436

+1.43%

-4.62%

+$0.6539

+$0.6423 Dollar/Dollar

Dollar/Norway

NOK=D3

9.2630

9.4000

-1.06%

+5.57%

+9.4265

+9.2940 Euro/Norway

EURNOK=

9.8365

9.8823

-0.46%

-1.76%

+9.9366

+9.8378 Dollar/Sweden

SEK=

9.7563

9.8606

-0.28%

+8.19%

+9.9010

+9.7393 Euro/Sweden

EURSEK=

10.3491

10.3779

-0.28%

+1.12%

+10.4121

+10.3435

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World FX rates Link
WRAPUP 3-Fed hikes rates by half percentage point, starts
balance sheet reduction June 1

US STOCKS-Wall Street mixed following Fed's interest hike

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Editing by Nick Zieminski, William Maclean