FOREX: Dollar choppy as risk-off mood, dovish Fed unsettle markets

The dollar found some support on Thursday from a broad risk-off mood in markets, but failed to recoup most of its losses after the Federal Reserve delivered a less hawkish outlook than some had anticipated.

Investors dumped risk assets like stocks and cryptocurrencies after disappointing earnings from U.S. cloud computing giant OracleORCL.N reignited fears that surging AI infrastructure costs could outpace profitability.

That helped stem the safe-haven dollar's slide, which initially faced selling pressure after remarks from Fed Chair Jerome Powell surprised some who had been positioned for a more hawkish tone.

The Australian dollar AUD= meanwhile got caught in the flight from risk and fell 0.7% to $0.6629, while the New Zealand dollar NZD= lost 0.44% to trade at $0.5791.

BitcoinBTC=, often viewed as a barometer of risk appetite, slid back below the $90,000 level, while ether ETH= was down more than 4% at $3,197.15.

"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."

DOLLAR FALLS OUT OF FAVOUR

At the conclusion of its two-day policy meeting on Wednesday, the Fed lowered rates by 25 basis points as expected.

"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.

That gave investors confidence to short the dollar as they bet on two more rate cuts next year, going against policymakers' median expectation for a single quarter-percentage-point reduction. 0#USDIRPR

The euro EUR= rose above the key $1.17 level and close to a two-month high of $1.1707 in the early Asian session, before paring some of those gains to trade 0.08% lower at $1.1686.

Sterling GBP= touched a 1-1/2-month peak of $1.3391, though was last down 0.17% at $1.3360. The yen JPY= was little changed at 156.07 per dollar.

Against a basket of currencies, the dollar =USD was up 0.1% at 98.74, having earlier hit its lowest since October 21.

"We still see room for rate cuts in 2026, especially if the job market turns out to be softer than the Fed's forecast," said Tai Hui, APAC chief market strategist at J.P. Morgan Asset Management.

U.S. Treasuries attracted bids after the Fed announced that it would start buying short-dated government bonds beginning December 12 to help manage market liquidity levels, with an 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.

The two-year U.S. Treasury yield US2YT=RR fell 3.5 bps to 3.5300%. The benchmark 10-year yield US10YT=RR was similarly down 4 bps to 4.1215%. Bond yields move inversely to prices. US/

-Rae Wee/Reuters