The Fed failed to raise interest rates at its last meeting and the outlook for a future hike by the end of this year seems dim as well.
The Fed decision to keep interest rates at zero percent came as no surprise but the move could dim the short-term outlook for the dollar.
Dollar futures came in at 11 percent chance on Friday that the Fed would raise rates in October, down from 41 percent on Thursday. A December hike by the Fed had a 42 percent chance and only a 52 percent probability for a rate increase at the Fed's late-January meeting.
USD Rebounds
Meanwhile, the dollar rebounded from a three-week low on Friday after a selling off the previous session before taking profits on their long positions in other currencies such as the euro and yen.
According to Allan von Mehren, chief analyst at Danske Bank in Copenhagen, "With the Fed still projected to hike later this year, we expect the dollar to perform relative to currencies such as the euro, yen and sterling in coming months."
Investors are looking at riskier currencies such as the Australian and New Zealand dollars as an alternative investment for the short term. The Australian dollar was up 0.3 percent against the greenback at US$0.7189, while the New Zealand dollar also rose 0.3 percent, to US$0.6400.
The euro was down 1.2 percent against the dollar at $1.1294 after hitting a three-week high of $1.1459. The dollar was flat against the yen at 119.96.