Dollar's Slide Accelerates as Fed Signals Pause and Labor Market Weakens

When Central Banks Send Mixed Signals, the Dollar Takes the Hit

The U.S. dollar entered a sharp downtrend this week, slipping to multi-month lows against major currencies after the Federal Reserve’s latest policy decision sent shockwaves through FX markets. But here’s the catch: the 25 basis point rate cut wasn’t the culprit. What actually spooked traders was what Fed Chair Powell didn’t say—or rather, the softer tone markets interpreted from his statements. Versus the Swiss franc, the greenback dropped 0.6% to 0.7947, marking its weakest level since mid-November. Against the euro, it fell further, with EUR climbing 0.4% to $1.1740, its highest since early October. Sterling held steady at $1.3387 after brushing two-month highs, while the yen showed the dollar retreating 0.3% to 155.61—a meaningful shift in the currency hierarchy.

The Fed’s Dovish Surprise Changed the Game

Markets had priced in a rate cut, but they were bracing for hawkish language afterward. Instead, Powell’s message suggested room for more cuts down the line, catching investors off-guard. As UBS strategist Vassili Serebriakov put it, “The market had more hawkish-leaning expectations going into the Fed meeting.” This divergence—where the Fed pivoted softer while other G10 central banks (Australia’s, the European Central Bank) flagged potential rate hikes—created a perfect storm for dollar weakness. When the U.S. signals easier policy while peers hint at tightening, capital flows gravitate elsewhere.

Jobless Claims Jump to Four-and-a-Half Year High

The labor market’s stumble added fuel to the fire. Initial jobless claims surged by 44,000 to 236,000 for the week ending December 6—the largest weekly jump in nearly four-and-a-half years. This wasn’t just a blip; it signaled real softness creeping into employment. Meanwhile, Australia’s labor data showed employment actually fell in November by the largest margin in nine months, sending the Aussie down 0.2% to $0.6663. The convergence of weaker employment across multiple major economies underscored why central banks globally are reassessing their stance.

$55 Billion Liquidity Flood Reshapes Market Dynamics

On top of all this, the Fed announced plans to buy short-dated government bonds starting December 12, pumping $40 billion into the system plus $15 billion reinvested in T-bills from maturing mortgage-backed securities. That’s a combined $55 billion liquidity injection designed to keep money flowing. For safe-haven assets like the dollar and U.S. Treasuries, this is actually bearish—it’s the Fed saying “we’re easing conditions.” But for riskier assets, it’s champagne and caviar.

The Swiss Franc and the Rate-Hold Advantage

Not every currency was knocked around. The Swiss franc actually strengthened after the Swiss National Bank decided to hold rates at 0%, signaling stability. SNB Chairman Martin Schlegel even noted that U.S. tariff relief on Swiss goods improved the outlook, making the franc look relatively attractive. Calculating currency moves across the board—when looking at 600 yen converted to AUD (Australian dollars), or similar cross-pairs—the franc’s resilience stood out amid broader dollar weakness.

Bitcoin and Ether Caught in the Spillover

The ripple effects hit crypto markets too. Bitcoin dipped below $90,000 before stabilizing just above it at $91,008, down 1.5% on the day. The weakness partly reflected broader tech sector pressure following disappointing earnings from Oracle, where mounting AI infrastructure costs are raising profitability concerns. Ether took a harder hit, falling more than 4% to $3,200. Risk appetite wasn’t dead, but it was definitely waning under the weight of these conflicting signals.

What’s Really Going On

The dollar’s recent trajectory tells a story bigger than any single data point. It’s about a fundamental recalibration of monetary policy expectations globally. The Fed is easing. The ECB and RBA are tightening (or considering it). Employment is deteriorating faster than expected. And central banks are flooding the system with liquidity to prevent financial stress. In this environment, the dollar—long seen as the ultimate safe haven—loses its appeal. When the Fed is injecting cash and signaling more rate cuts, why hold dollars when other currencies offer better yields or economic resilience? That’s the question reshaping currency markets right now.