Dollar Dips as Fed Shift Sparks Currency Shake-Up

The dollar depreciated after the Federal Reserve's less hawkish stance, as investors anticipated rate cuts next year. Despite lowering rates by 25 basis points, Fed Chair Powell's dovish remarks led to currency shifts. The euro and yen gained, while concerns about AI profitability impacted financial markets.

The dollar took a hit on Thursday after the Federal Reserve's unexpected dovish outlook prompted investors to reposition, banking on further rate cuts in the coming year. Despite a 25 basis point rate drop as anticipated, Fed Chair Jerome Powell's commentary was less aggressive than some had anticipated.

This sparked a selloff of the dollar, enabling the euro to rise above the $1.17 mark, touching a near two-month high, while sterling also reached an elevated point against the weakened greenback. The yen saw slight gains amid broad currency realignments, with the dollar falling to its lowest level since late October.

The Fed's decision to commence Treasury bill purchases adding liquidity further pressured yields, affecting market sentiment. Meanwhile, a downturn in AI-driven stocks and macroeconomic uncertainties played into a broader retreat in risk-heavy assets, including a notable dip in cryptocurrencies, as traders navigated a complex financial landscape.

(With inputs from agencies.)