US dollar sags as Fed outlook undermines; Swiss franc gets SNB lift

By Gertrude Chavez-Dreyfuss and Alun John

NEW YORK/LONDON, Dec 11 (Reuters) - The U.S. dollar stumbled on Thursday, hitting multi-month lows against the euro, Swiss franc, and sterling and extending losses from the previous session, after the Federal Reserve delivered a less hawkish outlook than some had expected.

The Swiss franc drew support from the Swiss National Bank's decision to hold interest rates steady. The dollar fell 0.6% versus the franc to 0.7947, after earlier touching its lowest since mid-November.

The greenback briefly found support earlier in the session as Asian shares and U.S. futures slid after disappointing earnings from U.S. cloud computing giant Oracle reignited fears that surging AI infrastructure costs could outpace profitability.

But that support faded in the U.S. session.

The euro was last up 0.4% at $1.1740 after earlier hitting its highest since October 3.

Sterling was last flat on the day at $1.3387 after earlier touching its highest level in roughly two months.

The dollar also weakened against the yen, shedding 0.3% to 155.61 yen.

The Fed lowered rates on Wednesday by 25 basis points, but, as the move was widely expected, the reaction reflected much more the broader messaging, projections and the voting split.

"The market had more hawkish-leaning expectations going into the Fed meeting and I don't think (Fed Chair Jerome) Powell was especially dovish, but he kind of left the door open for further cuts," said Vassili Serebriakov, FX strategist at UBS in New York.

That was in stark contrast with the message given by the Australian central bank chief and an influential European Central Bank policymaker suggesting their next moves would be rate hikes.

"We've seen quite aggressive, hawkish repricing of expectations outside of the U.S. like Australia, Canada, even Europe -- even ECB (European Central Bank) expectations were more hawkish seemingly validated by some ECB comments as well," Serebriakov said.

"So it's the Fed being a little more dovish versus what was expected, but there's also the contrast between the Fed and other central banks in the G10 where expectations are turning more hawkish."

The dollar was also pressured earlier by data showing that initial jobless claims increased by the most in nearly 4-1/2 years last week. Initial claims for state unemployment benefits jumped 44,000, the biggest increase since mid-July of 2021, to a seasonally adjusted 236,000 for the week ended December 6, the Labor Department said.

LIQUIDITY INJECTION

Also weighing on the dollar, U.S. Treasuries attracted bids and pushed yields lower after the Fed announced it would start buying short-dated government bonds from December 12 to help manage market liquidity levels, with an initial round totalling some $40 billion in Treasury bills.

That's on top of the $15 billion that the Fed will reinvest in T-bills starting this month from its maturing mortgage-backed securities (MBS).

The combined $55 billion in liquidity injection from the Fed is a positive for market sentiment and risky assets but negative for safe-haven assets such as the dollar.

Away from the dollar, the Swiss franc strengthened after the Swiss National Bank left its policy rate unchanged at 0% and said a recent agreement to reduce U.S. tariffs on Swiss goods had improved the economic outlook, even as inflation has somewhat undershot expectations.

The euro fell 0.2% against the Swiss franc to 0.9331.

While the strength of the franc is causing problems for the SNB by weighing heavily on inflation, the SNB's chairman Martin Schlegel reiterated that the hurdle for negative rates is high.

Elsewhere, the Australian dollar was hurt by data showing employment in November fell by the most in nine months. The Aussie dollar dipped 0.2% to US$0.6663.

Bitcoin, often viewed as a barometer of risk appetite, was hurt by the tech selloff and briefly slid back below the $90,000 level. It was last hovering slightly above that point, down 1.5% at $91,008. Ether was down more than 4% at $3,200.

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Descripti RIC Last U.S. Pct YTD Pct High Low

on Close Change Bid Bid

Previous

Session

Dollar 98.313 98.581 -0.26% -9.38% 98.763 98.1

index 33

Euro/Doll 1.1743 1.1696 0.4% 13.43% $1.1763 $1.1

ar 683

Dollar/Ye 155.53 156.28 -0.45% -1.13% 156.05 154.

n 955

Euro/Yen 182.66? 182.45 0.12% 11.91% 182.75 181.

89

Dollar/Sw 0.7944 0.8 -0.68% -12.45% 0.7999 0.79

iss 25

Sterling/ 1.3391 1.3383 0.08% 7.09% $1.3438 $1.3

Dollar 355?

Dollar/Ca 1.3773 1.3793 -0.14% -4.21% 1.3823 1.37

nadian 57

Aussie/Do 0.6663 0.6676 -0.18% 7.7% $0.6683 $0.6

llar 627

Euro/Swis 0.9328 0.9354 -0.28% -0.69% 0.9358 0.93

s 21

Euro/Ster 0.8766 0.8733 0.38% 5.98% 0.877 0.87

ling 35

NZ 0.5809 0.5816 -0.15% 3.78% $0.5831 0.57

Dollar/Do 88

llar

Dollar/No 10.0681? 10.0744 -0.06% -11.42% 10.1265 10.0

rway 52

Euro/Norw 11.8211 11.7908 0.26% 0.44% 11.855 11.7

ay 92

Dollar/Sw 9.246 9.2635 -0.19% -16.08% 9.2877 9.22

eden 78

Euro/Swed 10.8583 10.8335 0.23% -5.31% 10.8752 10.8

en 015