SINGAPORE - The dollar fell ‍out of favour on Thursday after the Federal Reserve delivered a less hawkish outlook than some had anticipated, giving investors confidence to ​short the currency as they bet on two more rate cuts next year.

The Fed at the conclusion of its two-day policy meeting lowered rates by 25 ⁠basis points as expected, but remarks from Chair Jerome Powell at his post-meeting press conference surprised some who had been positioned for a more hawkish tone.

"For ⁠us, ‌the big takeaway was a dovish tilt to the accompanying commentary, and at Fed Chair Powell's press conference," said Nick Rees, head of macro research at Monex Europe.

As a result, investors sold the dollar, which in turn pushed the euro above the ⁠key $1.17 level and close to a two-month high of $1.1707 in Asia trade on Thursday.

Sterling touched a 1-1/2-month peak of $1.3391, while the yen, which has recently come under pressure from still-wide interest rate differentials between Japan and the rest of the world, rose 0.25% to 155.64 per dollar.

Against a basket of currencies, the dollar fell to its lowest since October 21 at 98.537.

"I think most were looking for a ⁠rerun of the same hawkish sentiment which we ​saw in that October FOMC meeting. But this has certainly a different tone about it, the commentary's different, the T-bill buying supportive, the vote certainly wasn't as hawkish as everybody ‍expected," said Tony Sycamore, a market analyst at IG.

Wednesday's outcome reinforced market expectations for two more rate cuts next year, against the Fed's median expectation for a single quarter-percentage-point cut next year.

The ​central bank also announced that it would start buying short-dated government bonds to help manage market liquidity levels beginning December 12, with the initial round totalling around $40 billion in Treasury bills.

"The earlier start and size of the T-bill purchases surprised investors," said analysts at Societe Generale in a note.

That put downward pressure on U.S. yields, with the two-year U.S. Treasury yield falling about 3 bps to 3.5340%. The benchmark 10-year yield was similarly down 3 bps to 4.1332%. Bond yields move inversely to prices.

 

AI FEARS STRIKE BACK

In the broader financial market, risk sentiment soured as stocks took a knock from disappointing earnings at U.S. cloud computing giant Oracle, sounding a warning for AI profitability and reigniting fears of a bubble in the sector.

That dragged on the Australian dollar, which was further weighed by a downbeat jobs report. The Aussie fell 0.5% to $0.6643.

Similarly, the New Zealand dollar slipped 0.3% ⁠to $0.5799, with both Antipodean currencies retreating from multi-month highs hit in the previous session.

Bitcoin, ‌often viewed as a barometer of risk appetite, slid 3% back below the $90,000 level, while ether was down close to 5% at $3,176.86.

"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, short-term traders are taking profit into thin liquidity, and the wider macro and geopolitical ⁠backdrop is still uncertain. All of that keeps the immediate response muted."

(Reporting by Rae Wee Editing by Shri Navaratnam)


Reuters