During Asian trading hours on Monday, the US Dollar Index (DXY), which gauges the dollar’s value against six major currencies, was around 99.75. The index experienced an uptick, driven by the hawkish tone from the US Federal Reserve. Traders are now anticipating the release of the US October ISM Manufacturing Purchasing Managers’ Index (PMI) report later today.
The US central bank indeed cut interest rates by 25 basis points last week, which was widely expected. Still, Fed Chairman Jerome Powell hinted that this might be the final reduction for the year, expressing concerns about the risks of further cuts without a clearer economic outlook.
In addition, Dallas Fed President Laurie Logan and Cleveland Fed President Beth Hammack mentioned that they would prefer to keep rates steady instead of reducing the federal funds target range by a quarter percentage point to between 3.75% and 4.0%. Kansas City Fed President Jeff Schmidt expressed more worry over inflation being “too high” rather than issues in the labor market, leading him to vote against rate cuts at the last meeting. Such hawkish remarks from Fed officials contributed to the dollar’s strength.
Market sentiment is shifting, with traders now dialing back hopes for a rate cut in December. The likelihood of a cut has dropped to about 68%, down from 93% just a week earlier, as per the CME FedWatch tool.
The ongoing government shutdown, now in its sixth week, has shown no signs of resolving, with a standstill between Republicans and Democrats that could extend this to the longest shutdown in U.S. history. This uncertainty surrounding the federal government could cast a shadow on the DXY.
