*
Fed cuts rates, but signals pause in January
*
Fed's Powell says rate hike not base case for policymakers
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New Fed rate forecasts see just one rate cut in 2026
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Rate futures still price in two cuts next year
(Adds new comments, remarks from Fed's Powell, fed funds futures, FX
table, updates prices)
By Gertrude Chavez-Dreyfuss, Chibuike Oguh and Laura Matthews
NEW YORK, Dec 10 (Reuters) - The U.S. dollar fell against
major peers including the euro, Swiss franc, and Japanese yen on
Wednesday after the Federal Reserve lowered interest rates in a
widely-expected move, but indicated it will likely pause its easing
cycle at the next policy meeting in January.
The greenback was further weighed down by comments Fed Chair
Jerome Powell in a press briefing after the rate decision, saying that
the U.S. central bank's next move is
unlikely to be a rate hike
. He added that a rate increase is not the base case reflected in
new projections from policymakers.
The Fed's decision to lower the benchmark policy rate by a
quarter of a percentage point to the 3.50%-3.75% range drew three
dissents. Chicago Fed President Austan Goolsbee and Kansas City Fed
President Jeffrey Schmid argued that the policy rate should be left
unchanged, while Fed Governor Stephen Miran again advocated for a
larger half-percentage-point reduction.
In addition, new projections issued after the U.S. central bank's
25 basis-point rate reduction, showed the median policymaker sees just
one quarter-percentage-point cut in 2026, the same outlook as in
September.
"In considering the extent and timing of additional
adjustments to the target range for the federal funds rates, the
Committee will carefully assess incoming data," the Federal Open
Market Committee said in a statement, a language that in the past has
been used to signal a pause in policy actions.
The greenback lost ground against peer currencies immediately
after the Fed's announcement.
In afternoon trading, the dollar fell 0.8% against the Swiss franc
to 0.8000 franc and was last down 0.6% at 155.92 against the
Japanese yen.
The euro last changed hands at $1.1691, up 0.6%, while the
dollar index, which measures the greenback against a basket of
currencies including the yen and the euro, slid 0.6% to 98.66.
"Although the market entered the day fully priced for a rate cut,
the dollar's whipsaw reaction following the expected decision
underscores the data gaps and shifting narratives driving markets
today," said Uto Shinohara, senior investment strategist, at Mesirow
Currency Management in Chicago.
"While Powell indicated that the Fed is well-positioned to
wait, growing labor concerns and a tariff-induced view on inflation
brought the dollar under pressure."
Futures on the fed funds rate, which measure the cost of
unsecured overnight loans between banks, raised the odds on Wednesday
that the Fed will pause its easing cycle at the next policy meeting in
January.
The market has priced in a 78% chance that the Fed will hold
interest rates steady next month, compared with a 70% probability just
before the rate cut announcement.
But even though the rate forecast from the Fed was for one rate
decline next year, the rate futures market still priced in two cuts in
2026 or a fed funds rate of 3.0%.
"The statement emphasized weakness in the labor market as the
principal rationale for the 25-basis-point cut, and this detail is
what the market has picked up on, suggesting the Fed could continue
easing policy, even though the expectations for easing in 2026 haven't
changed with one 25 basis point priced in," said Michael Rosen, chief
investment officer at Angeles Investments, in Santa Monica,
California.
Market participants continued to price out U.S. recession risk
given the recent run of data that showed the economy, while exhibiting
pockets of weakness in the labor and manufacturing sectors, is not
necessarily falling off a cliff.
Data on Tuesday showed U.S. job openings increased marginally
in October after surging in September, suggesting the labor market is
cooling.
White House economic adviser Kevin Hassett, the front-runner
to be the Federal Reserve's next chair, told the WSJ CEO Council on
Tuesday there was "plenty of room" to cut interest rates further,
though he added that if inflation rose the calculation might change.
Currency
bid
prices at
10
December?
09:01
p.m. GMT
Descripti RIC Last U.S. Pct YTD Pct High Low
on Close Change Bid Bid
Previous
Session
Dollar 86
Euro/Doll 621
Dollar/Ye 205
Euro/Yen 01
Dollar/Sw 93
Sterling/ 297?
Dollar/Ca 84
Aussie/Do 629
Euro/Swis 45
Euro/Ster 29
NZ 62
llar
Dollar/No 789
Euro/Norw 857
Dollar/Sw 39
Euro/Swed 175
(Reporting by Gertrude Chavez-Dreyfuss, Chibuike Oguh, and Laura
Matthews; Editing by Nia Williams, Diane Craft and Nick Zieminski)
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