By Alexander Martin

Fed disappoints investors' expectations of more hawkish tone

NEW YORK (MarketWatch)--The dollar pared gains against the yen and most major currencies following a statement from the Federal Reserve delivered Wednesday afternoon in which the central bank said it believes the labor market remains unstable despite recent signs that economic growth is accelerating.

Investors are eagerly awaiting any sign that the Fed may raise interest rates sooner than expected, as this would have a bullish effect on the dollar.

The dollar was at 102.85 yen Wednesday afternoon, up from Yen102.10 Tuesday evening.

The euro was trading at $1.3389, down from $1.3411 late Tuesday.

"People were thinking the Fed might say more about tightening given that job numbers and other data have improved, but the FOMC essentially made it clear that the Fed won't be tightening any time soon," said Jonathan Lewis, chief investment officer at Samson Capital Advisors. "The announcement has put a cap on the extent of the dollar rally."

The ICE U.S. dollar index, a measure of the greenback's performance against six other currencies, was at 81.4010 Wednesday, up from 81.2140 Tuesday.

More must-reads from MarketWatch:

Why the 10-year Treasury could yield 4% by Thanksgiving

Japan output data shows consumers retrenching

UPS shares delivery a Dow Thoery warning for stocks

Subscribe to WSJ: http://online.wsj.com?mod=djnwires