The dollar experienced a decline on Thursday following the Federal Reserve’s less aggressive stance than expected, which encouraged investors to short the currency in anticipation of two additional rate cuts in the upcoming year. The Fed, at the conclusion of its two-day policy meeting, lowered rates by 25 basis points as anticipated. However, remarks from Chair Jerome Powell during his post-meeting press conference caught some off guard, as they had been positioned for a more hawkish tone. “For us, the significant insight was a dovish tilt to the accompanying commentary, and at Fed Chair Powell’s press conference,” stated Nick Rees. Consequently, investors divested from the dollar, leading to the euro surpassing the critical $1.17 threshold and nearing a two-month peak of $1.1707 during Asian trading on Thursday.

Sterling reached a 1-1/2-month high of $1.3391, whereas the yen, facing recent pressure due to significant interest rate differentials between Japan and other countries, increased by 0.25% to 155.64 per dollar. The dollar declined to its lowest level since October 21, reaching 98.537 against a basket of currencies. “It appears that many were anticipating a repetition of the hawkish sentiment observed during the 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. Wednesday’s outcome solidified market anticipations for two additional rate cuts in the upcoming year, contrasting with the Fed’s median forecast of only one quarter-percentage-point reduction next year.

The central bank has announced its intention to commence the purchase of short-dated government bonds to assist in managing market liquidity levels, starting on December 12. The initial round is set to total approximately $40 billion in Treasury bills. “The earlier start and size of the T-bill purchases surprised investors,” noted analysts in a report. The situation exerted downward pressure on U.S. yields, resulting in the two-year U.S. Treasury yield declining approximately 3 basis points to 3.5340%. The benchmark 10-year yield experienced a decrease of 3 basis points, settling at 4.1332%. Bond yields exhibit an inverse relationship with prices. In the broader financial market, risk sentiment deteriorated as stocks faced a decline due to disappointing earnings from U.S. cloud computing leader Oracle, raising concerns about AI profitability and rekindling fears of a bubble in the sector.

The Australian dollar was negatively impacted, further pressured by a disappointing jobs report. The Australian dollar declined by 0.5%, settling at $0.6643. In a similar fashion, the New Zealand dollar declined by 0.3% to $0.5799, as both Antipodean currencies pulled back from the multi-month highs achieved in the prior session. Bitcoin, frequently regarded as an indicator of risk appetite, decreased by 3%, falling back below the $90,000 threshold, while ether experienced a decline of nearly 5%, settling 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 stated regarding the decline in crypto prices. “The 25-basis-point cut was already priced in; short-term traders are taking profit amid thin liquidity, and the broader macro and geopolitical landscape remains uncertain.” The immediate response remains subdued as a result of all these factors.