The US Dollar Index (DXY) traded slightly higher around 98.85 during Monday’s Asian session, as optimism over easing US-China trade tensions lifted the greenback. Markets found relief after former US President Donald Trump struck a more conciliatory tone toward China, helping stabilize risk sentiment and supporting the USD against its major peers.
Trump softens stance on China
After threatening to impose 100% tariffs on Chinese imports starting November 1, Trump appeared to walk back his comments over the weekend, saying that China’s economy “will be fine” and that the US seeks to “help China, not hurt it.” The shift in rhetoric fueled expectations that the trade dispute between the world’s two largest economies may not escalate further, prompting a mild rebound in the Dollar.
US consumer sentiment weakens slightly
Data released Friday showed that the University of Michigan’s Consumer Sentiment Index fell marginally to 55.0 in early October from 55.1 in September, slightly outperforming market forecasts of 54.2.
The 1-year inflation expectation edged lower to 4.6% from 4.7%, while the 5-year outlook remained steady at 3.7%. The modest decline in sentiment highlights persistent consumer caution amid economic uncertainty but suggests inflation expectations are stabilizing.
Political gridlock and Fed rate cut bets cap upside
Despite its recent recovery, the DXY’s upside remains capped by political and monetary headwinds. The ongoing US government shutdown—now entering its third week—continues to weigh on market confidence, as lawmakers struggle to reach a budget agreement. With the Senate not expected to vote until Tuesday, uncertainty over fiscal operations persists.
Meanwhile, rate cut expectations continue to pressure the greenback. According to the CME FedWatch tool, markets are pricing in a 97% probability of a 25 basis point (bps) rate cut at the Federal Reserve’s October meeting and a 92% likelihood of an additional cut in December. These dovish expectations could limit further strength in the US Dollar in the near term.
