The dollar fell during early foreign exchange trading on Thursday after the US Federal Reserve said that it would hold rates and that inflationary pressures are easing.

The US currency slipped to ¥120.50, down from ¥120.70 previously, and was little changed against the euro at $1.3032.

Dollar trading also moderated as the markets began to hedge their bets against a more hawkish position on the yen's value at next week's G7 meeting.

"The Fed's statement is affecting the dollar but pre-G7 caution is also weighing more," Nobuo Ibaraki of Nomura Trust and Banking told Reuters.

"Market players need to make adjustments having built up positions on the assumption that the yen's weakness will continue."

While saying that the threat of inflation was receding, the Fed added reaffirmed its assessment that the US economy would continue to expand at a "moderate" rate.

Recent positive economic data had led the markets to expect a more hardline statement on fiscal policy.