NEW YORK: The U.S dollar slumped on Thursday, 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 percent 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 US futures slid after disappointing earnings from US cloud computing giant Oracle reignited fears that surging AI infrastructure costs could outpace profitability.
However, that support faded in the US session.
The euro was last up 0.4 percent at USD1.1737 after earlier hitting its highest since October 3.
Sterling rose 0.3 percent to USD1.3420 after earlier touching its highest level in roughly two months.
The dollar also weakened against the yen, shedding 0.6 percent 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, US 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 USD40 billion in Treasury bills.
That’s on top of the USD15 billion that the Fed will reinvest in T-bills starting this month from its maturing mortgage-backed securities (MBS).
The combined USD55 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 percent and said a recent agreement to reduce US tariffs on Swiss goods had improved the economic outlook, even as inflation has somewhat undershot expectations.
The euro fell 0.3 percent 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.
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