The euro was down 0.23 percent on the day at $1.3372 after hitting a two-year high of $1.3411 in Asia. It earlier dipped to $1.3344.

The dollar was up 0.23 percent at 117.83 yen erasing early losses. It rose 0.18 percent to 1.2116 Swiss francs. The euro was also dragged down by its losses against sterling after stronger-than-expected UK retail sales data.

Analysts say the Fed is making sure it steers the economy into a soft landing, which is positive for investor risk appetite and carry trades, where people borrow in low-yielding currencies such as yen to purchase high-return assets.

Federal Reserve Chairman Ben S. Bernanke is giving himself flexibility to respond to slowing economic growth.

For the first time since the Fed ended a two-year run of interest-rate increases in August, the central bank yesterday signaled that its next move might be either to lower or raise borrowing costs, instead of just the latter. The Federal Open Market Committee’s statement omitted a previous reference to “additional firming” in favor of the more general “future policy adjustments.”

The shift indicates officials may have concluded the risks of a deeper recession in the housing market make it hard to raise rates to bring down inflation more quickly. While the statement described inflation as “elevated,” some traders interpreted the new language to signal a rate cut as soon as June.

“They have a lot more room to maneuver in case the housing situation spins out of control,” said John Silvia, chief economist at Wachovia Corp. in Charlotte, North Carolina. “They are going to be patient with inflation. They will not do any preemptive move until they get a better feel on the economy.”

The Fed did not cite the market turbulence in its statement, but it did note that recent economic indicators have been “mixed,â€? a downgrade from the Fed’s view at the January meeting that recent indicators showed “somewhat firmer economic growth.â€? It also said the correction in the once high-flying housing market was still “on-goingâ€? while in January Fed officials had detected “tentative signs of stabilizationâ€? in housing.

In the new statement, the Fed also showed greater concerns about inflation, noting that readings on core inflation, which excludes energy and food, had been “somewhat elevated� recently, a comment that reflected the bigger-than-expected increases in consumer and wholesale inflation reported last week.

Analysts say the Fed is making sure it steers the economy into a soft landing, which is positive for investor risk appetite and carry trades, where people borrow in low-yielding currencies such as yen to purchase high-return assets. Such trades tend to push the value of yen lower against the dollar.

Still, the central bank’s tone was grimmer on Wednesday, implicitly acknowledging the implosion among top subprime lenders like New Century Financial.

Where the Fed saw “tentative signs of stabilization� in the housing market in January, on Wednesday it merely said that “the adjustment in the housing sector is ongoing.�

Mr. Bernanke has been more optimistic about the economic prospects than Mr. Greenspan. Speaking last month to private conferences of investors, Mr. Greenspan cautioned that the United States was now in the sixth year of an economic expansion and that such times often produced the seeds of a downturn.

In an interview with Bloomberg News last month, Mr. Greenspan rated the probability of a recession in 2007 at about one-third — more bearish than the Fed or most investors.

Mr. Bernanke, by contrast, told a Congressional hearing in February that the economy had slowed slightly, but was likely to pick up speed by this summer. The Federal Reserve’s consensus forecast — an amalgam of predictions by individual Fed governors and the regional Fed banks — anticipates that the economy will expand at an annual pace of about 3 percent in the second half of the year.