US Dollar Slips as Fed Rate Cut and Powell’s Cautious Tone Weigh on Market Sentiment

The US dollar closed lower on Wednesday after the Federal Reserve cut interest rates in its December meeting, adding pressure on the currency as markets digested a softer policy stance. The central bank also signaled the need for additional Treasury purchases—an action that functions much like quantitative easing and reinforces the shift toward a more accommodative environment.

In both the policy statement and remarks from Fed Chair Jerome Powell, the message was clear: future moves will depend entirely on incoming economic data. Powell emphasized that every potential path for monetary policy remains uncertain, and the Fed must navigate a landscape filled with risks.

The Fed’s statement noted rising concerns on both sides of its dual mandate, particularly highlighting that downside risks to the labor market have increased in recent months. Policymakers stressed that any further adjustments to rates will require careful evaluation of new data, shifting economic expectations, and overall risk balance.

Powell described the inflation picture as mixed—goods inflation has risen noticeably, while services inflation continues to cool. As a result, short-term risks point in two directions: upward pressure on prices and weaker job growth. This combination adds to the delicate balancing act facing the central bank.

Historically, expectations of looser monetary policy tend to support stock market performance, and the recent shift has been no exception. Lower interest rates create a more favorable environment for businesses by making borrowing cheaper, encouraging investment and expansion. This, in turn, boosts the appeal of equities for investors.

As the Fed leans toward caution and data dependence, the dollar remains vulnerable, while equity markets stand to benefit from the more supportive policy backdrop.