Dollar sinks after Fed signals softer outlook; Swiss franc jumps

REUTERS/JASON LEE/FILE PHOTO/FILE PHOTO/FILE PHOTO

Euro, Hong Kong dollar, U.S. dollar, yen, pound and 100-yuan banknotes are seen in this picture illustration, in Beijing, China, in January 2016. The U.S dollar slumped today, hitting multi-month lows against the euro, Swiss franc, and sterling and extending losses from the previous session after the Federal Reserve delivered a less hawkish outlook than some had expected.

SINGAPORE/LONDON/NEW YORK >> The U.S dollar slumped today, hitting multi-month lows against the euro, Swiss franc, and sterling and extending losses from the previous session after the Federal Reserve delivered a less hawkish outlook than some had expected.

The Swiss franc drew support from the Swiss National Bank’s decision to hold interest rates steady. The dollar fell 0.7% versus the franc to 0.7946, after earlier touching its lowest since mid-November.

The greenback briefly found support earlier in the session as Asian shares and U.S. futures slid after disappointing earnings from U.S. cloud computing giant Oracle reignited fears that surging AI infrastructure costs could outpace profitability.

However, that support faded in the U.S. session.

The euro was last up 0.4% at $1.1737 after earlier hitting its highest since October 3.

Sterling rose 0.3% to $1.3420 after earlier touching its highest level in roughly two months.

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The dollar also weakened against the yen, shedding 0.6% to 156.04 yen.

The Fed lowered rates on Wednesday by 25 basis points, but, as the move was widely expected, the reaction reflected much more the broader messaging, projections and the voting split.

“There were only two hawkish dissenters that opposed a cut, which is not quite as many as investors had braced for,” wrote Matthew Ryan, head of market strategy at global financial services firm Ebury, in emailed comments.

“(Fed Chair Jerome) Powell hinted that the Fed would sit on its hands in January, although he far from gave the impression that a long pause in the cycle was on the way, as he expressed a willingness for further cuts in order to support the labor market.”

Heading into the Fed meeting, traders had been wondering whether they would get a similar message to those sent by the Australian central bank chief and an influential European Central Bank policymaker suggesting their next moves would be rate hikes.

Also weighing on the dollar, U.S. Treasuries attracted bids and pushed yields lower after the Fed announced it would start buying short-dated government bonds from December 12 to help manage market liquidity levels, with an initial round totalling some $40 billion in Treasury bills.

That’s on top of the $15 billion that the Fed will reinvest in T-bills starting this month from its maturing mortgage-backed securities (MBS).

The combined $55 billion in liquidity injection from the Fed is a positive for market sentiment and risky assets but negative for safe-haven assets such as the dollar.

Away from the dollar, the Swiss franc strengthened after the Swiss National Bank left its policy rate unchanged at 0% and said a recent agreement to reduce U.S. tariffs on Swiss goods had improved the economic outlook, even as inflation has somewhat undershot expectations.

The euro fell 0.3% against the Swiss franc to 0.9331.

While the strength of the franc is causing problems for the SNB by weighing heavily on inflation, the SNB’s chairman, Martin Schlegel, reiterated that the hurdle for negative rates is high.

Elsewhere, the Australian dollar was hurt by data showing employment in November fell by the most in nine months. The Aussie dollar slipped 0.1% to US$0.6666.

Bitcoin, often viewed as a barometer of risk appetite, was hurt by the tech selloff and briefly slid back below the $90,000 level. It was last hovering slightly above that point, down 2.1% at $90,446. Ether was down more than 4% at $3,203.

“Even with a softer Fed outlook, the market is still working through the excess leverage from October, so reactions to macro signals are slower than usual,” Gracie Lin, OKX’s Singapore CEO, said of the fall in crypto prices.

“The 25-basis-point cut was already priced in… and the wider macro and geopolitical backdrop is still uncertain. All of that keeps the immediate response muted.”

Currency bid prices at 11 December ​ 03:28 p.m. GMT Descript RIC Last U.S. Pct YTD High Low ion Close Chang Pct Bid Bid

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