Fed Signals Easing Cycle While Dollar Stumbles Against Major Peers

The greenback’s recent retreat across currency markets reflects a fundamental shift in monetary policy divergence, with the Federal Reserve’s softer stance standing in stark contrast to hawkish posturing from G10 counterparts. The U.S. Dollar index touched multi-month lows Thursday as markets digested the implications of looser Fed guidance, while riskier assets capitalized on the newfound liquidity injection into the system.

Monetary Policy Divergence Weighs on Dollar Strength

The Fed’s 25 basis point rate cut, though anticipated, triggered outsized market moves following Powell’s projections suggesting room for further reductions. UBS FX strategist Vassili Serebriakov observed that “the market arrived at the meeting with more hawkish assumptions,” meaning the central bank’s relatively dovish tone caught participants off-guard. This contrasts sharply with the European Central Bank and Reserve Bank of Australia, both signaling imminent rate hikes—a dynamic that typically supports their respective currencies at the dollar’s expense.

Meanwhile, the Swiss National Bank maintained its 0% policy rate while explicitly ruling out negative rate territory. SNB Chairman Martin Schlegel cited improved economic prospects following U.S. tariff concessions on Swiss goods. The franc climbed 0.6% to 0.7947 per dollar, marking its strongest level since mid-November.

Economic Data Adds to Dollar Headwinds

Employment figures delivered a double punch to risk sentiment. The Labor Department reported jobless claims jumped 44,000 to 236,000 for the week ending December 6—the largest weekly surge in nearly four-and-a-half years—signaling labor market softness. Simultaneously, Australian employment fell by its steepest margin in nine months, pressuring the Aussie down 0.2% to $0.6663.

These softer data points further validated the Fed’s cautious stance, reinforcing expectations of additional cuts ahead and dampening traditional safe-haven demand for the dollar.

Liquidity Surge Fuels Risk-On Sentiment

The Fed’s announcement of $40 billion in short-term Treasury purchases commencing December 12, combined with $15 billion in T-bill reinvestment from maturing mortgage-backed securities, injected $55 billion of fresh liquidity into financial markets. This monetary accommodation particularly benefited higher-yielding and more speculative assets.

Against this backdrop, the Euro strengthened 0.4% to $1.1740, reaching its highest point since early October. The British pound held steady at $1.3387 after touching two-month highs, while the Japanese Yen gained 0.3% against the greenback to 155.61.

Crypto Markets Reflect Risk-Off Pressure Despite Dovish Backdrop

Interestingly, Bitcoin and Ether defied the typical risk-on narrative, as broad technology selling weighed on digital assets. Bitcoin dipped below $90,000 before steadying at $91,008—down 1.5% on the session. Ethereum fell more sharply, declining over 4% to $3,200, as investors reassessed AI infrastructure profitability amid surging deployment costs highlighted by Oracle’s disappointing earnings report.

The current environment demonstrates how multiple competing forces—monetary easing, labor market softness, and technology sector repricing—create complex cross-currents across asset classes, with the dollar bearing the brunt of policy shift expectations.