FOREX-Dollar stumbles as dovish Fed tempts bears

By Rae Wee

SINGAPORE, Dec 11 (Reuters) - The dollar fell out of favour on Thursday after the Federal Reserve delivered a less hawkish outlook than some had anticipated, giving investors confidence to short the currency as they bet on two more rate cuts next year.

The Fed at the conclusion of its two-day policy meeting lowered rates by 25 basis points as expected, but remarks from Chair Jerome Powell at his post-meeting press conference surprised some who had been positioned for a more hawkish tone.

"For us, the big takeaway was a dovish tilt to the accompanying commentary, and at Fed Chair Powell's press conference," said Nick Rees, head of macro research at Monex Europe.

As a result, investors sold the dollar, which in turn pushed the euro EUR= above the key $1.17 level and close to a two-month high of $1.1707 in Asia trade on Thursday.

Sterling GBP= touched a 1-1/2-month peak of $1.3391, while the yen JPY=, which has recently come under pressure from still-wide interest rate differentials between Japan and the rest of the world, rose 0.25% to 155.64 per dollar.

Against a basket of currencies, the dollar =USD fell to its lowest since October 21 at 98.537.

"I think most were looking for a rerun of the same hawkish sentiment which we saw in that October FOMC meeting. But this has certainly a different tone about it, the commentary's different, the T-bill buying supportive, the vote certainly wasn't as hawkish as everybody expected," said Tony Sycamore, a market analyst at IG.

Wednesday's outcome reinforced market expectations for two more rate cuts next year, against the Fed's median expectation for a single quarter-percentage-point cut next year. 0#USDIRPR

The central bank also announced that it would start buying short-dated government bonds to help manage market liquidity levels beginning December 12, with the initial round totalling around $40 billion in Treasury bills.

"The earlier start and size of the T-bill purchases surprised investors," said analysts at Societe Generale in a note.

That put downward pressure on U.S. yields, with the two-year U.S. Treasury yield US2YT=RR falling about 3 bps to 3.5340%. The benchmark 10-year yield US10YT=RR was similarly down 3 bps to 4.1332%. Bond yields move inversely to prices. US/

AI FEARS STRIKE BACK

In the broader financial market, risk sentiment soured as stocks took a knock from disappointing earnings at U.S. cloud computing giant Oracle, sounding a warning for AI profitability and reigniting fears of a bubble in the sector.

That dragged on the Australian dollar AUD=, which was further weighed by a downbeat jobs report. The Aussie fell 0.5% to $0.6643.

Similarly, the New Zealand dollar NZD= slipped 0.3% to $0.5799, with both Antipodean currencies retreating from multi-month highs hit in the previous session.

Bitcoin BTC=, often viewed as a barometer of risk appetite, slid 3% back below the $90,000 level, while ether ETH= was down close to 5% at $3,176.86.

"Even with a softer Fed outlook, the market is still working through the excess leverage from October, so reactions to macro signals are slower than usual," Gracie Lin, OKX's Singapore CEO, said of the fall in crypto prices.

"The 25-basis-point cut was already priced in, short-term traders are taking profit into thin liquidity, and the wider macro and geopolitical backdrop is still uncertain. All of that keeps the immediate response muted."