(Dec 11): The dollar posted its worst day in nearly three months after Federal Reserve chair Jerome Powell highlighted labour market risks while downplaying inflation concerns on Wednesday.
The Bloomberg Dollar Spot Index ended the session down 0.4%, its biggest drop since Sept 16, following the Fed’s decision to lower borrowing costs by a quarter percentage point. The greenback lost ground against all of its peers among developed markets, with the Swiss franc and British pound among top performers. The Swiss franc rose 0.8%, while the pound advanced 0.7%.
“Powell was less upbeat on the labour market, compared to what we saw in the previous projections,” said Alex Cohen, strategist at Bank of America, adding that the Fed chair’s remarks on labour and inflation sparked the dollar decline.
The dollar touched its lowest level since late October after the Fed delivered a widely expected rate reduction. Traders maintained their bets on two more rate cuts in 2026 ahead of a slew of economic data coming next week, including November consumer prices and payrolls, which were delayed due to the longest government shutdown in US history. The Fed suggested uncertainty over further reductions but maintained its forecast of one quarter-point cut next year.
The latest reads on the job market and inflation will be “more crucial” for the dollar path than Wednesday’s policy decision, according to Aroop Chatterjee, strategist at Wells Fargo in New York.
“The expectations were for a fairly hawkish tone,” but instead Powell was more dovish, said Nathan Thooft, a senior portfolio manager at Manulife Investment Management.
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