(Bloomberg) -- The dollar was on pace for its biggest two-day decline since July as investors adjust to the new outlook for US interest rates after the Federal Reserve’s latest meeting.

The Bloomberg Dollar Spot Index fell 0.8% on Thursday to the lowest since August, extending a drop after US policymakers on Wednesday said they’d begun to contemplate the timing of monetary easing. 

The euro and British pound advanced more than 1% against the greenback after their central banks kept rates unchanged. The onshore Chinese renminbi also climbed 0.9%.

Fed officials released new quarterly forecasts that anticipate a sharper drop in their target for the federal funds rate next year than in September. That prompted traders to ramp up wagers on rate cuts, sending waves through global financial markets. 

The European Central Bank, meanwhile, kept rates on hold Thursday, but warned it has no plans to lower its guard and become complacent after a recent inflation slump. 

“The Fed definitely opened the floodgates, but I think today’s reaction is overblown,” said Helen Given, an FX spot trader at Monex USA. “While markets believe the Fed will be the first to cut, I don’t buy it and think it will come from the ECB in March.”

Elsewhere, the Bank of England kept interest rates at a 15-year high, sticking with its message that borrowing costs will remain elevated for some time. In Norway, the central bank raised rates for what the central bank said would likely be the last time. The surprise move fueled a more-than-3% advance for the krone against the dollar, leading gains for all Group-of-10 currencies versus the greenback Thursday.

While the dollar may edge slightly lower on rate-cut sentiment, most of the move is already in the price, said Brad Bechtel, a foreign-exchange strategist at Jefferies. “So we go back to data dependent,” he said. 

--With assistance from George Lei.

(Adds comments and context from sixth paragraph; updates prices throughout.)

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