The US dollar found support on Thursday (December 11) from a broad risk-averse market mood, but failed to recover overnight losses against other currencies such as the euro, yen, and pound sterling after the Federal Reserve offered a less aggressive outlook than some had expected.

Investors in Asia sold riskier assets such as stocks and cryptocurrencies after disappointing earnings from US cloud computing giant Oracle rekindled concerns that soaring AI infrastructure costs could outpace profitability.

This helped stem the decline in the safe-haven US dollar, which initially faced selling pressure after Fed Chair Jerome Powell's remarks surprised some who had been positioning for a more hawkish tone.

However, the risk-off sell-off eased somewhat in Europe, with the euro at $1.1704, steady on the day at a nearly two-month high, following a 0.6% gain on Wednesday. The pound was at $1.13374, also steady after a 0.65% gain on Wednesday.

The dollar also weakened against the yen. It fell 0.14% to 155.8 yen after a 0.56% decline the previous day. The Fed cut interest rates on Wednesday by 25 basis points, but because the move was widely expected, the reaction more closely reflected the broader message, projections, and divergence of opinion.

"Investors were bracing for an aggressive rate cut. Ultimately, there were only two dissenters, and the Fed maintained a rate cut in their median forecast for 2026," said Chris Turner, head of global markets at ING.

"Similarly, it seems Chairman Powell is reluctant to be caught up in the view that the Fed is now in a pause phase," he said.

Ahead of the Fed meeting, traders are wondering whether they will receive similar messages to those received from Australia's central bank chief and influential European Central Bank policymakers, indicating that their next move will be a rate hike.

Additionally, and further pressuring the dollar, US government bonds attracted buying interest after the Fed announced it would begin purchasing short-term government bonds starting December 12th to help manage market liquidity levels, with the initial round reaching approximately $40 billion in government debt.

AUSTRALIAN DOLLAR AND CRYPTO AFFECTED

However, while the largest currencies remain focused on the Fed, the most risk-sensitive parts of the market are still affected by the weakness in technology stocks.

Bitcoin, often considered a barometer of risk appetite, briefly fell back below $90,000, and was last there, down 2.4%. Ether fell more than 4% to $3,200.

"Even with a more dovish Fed outlook, the market is still processing excess leverage from October, so the reaction to macro signals is slower than usual," said Gracie Lin, CEO of OKEx Singapore, regarding the crypto price decline.

"The 25 basis point rate cut is already priced in... and the broader macro and geopolitical backdrop remains uncertain. All of this limits any immediate response."

The Australian dollar was also caught in the risk-off movement, falling 0.5% to $0.6644. (alg)

Source: Reuters.com