The US Dollar Index (DXY) extended its pullback during the Asian session on Wednesday, drifting lower for the second consecutive day after retreating from a two-month high reached last week. The index fell below the 99.00 mark and remains under pressure amid mounting economic risks and dovish expectations surrounding the Federal Reserve (Fed).
Fed rate cut expectations weigh on the USD
The greenback’s weakness is largely driven by growing market consensus that the Fed will deliver two more rate cuts this year — in October and December. These expectations have significantly dampened investor sentiment toward the USD, with traders increasingly positioning for a more accommodative monetary stance as the Fed seeks to counter slowing growth and elevated uncertainty.
US government shutdown extends into third week
Concerns over the prolonged US government shutdown have further undermined the dollar. A Republican-backed stopgap funding bill failed to pass in the Senate on Tuesday, extending the shutdown, which began on October 1, into its third week. The ongoing closure has delayed key macroeconomic data releases and clouded the near-term economic outlook, heightening downside risks for the USD.
Renewed US-China trade tensions add pressure
The dollar also faced headwinds from renewed trade frictions between the United States and China. US President Donald Trump threatened to terminate trade in cooking oil and other goods in response to Beijing’s decision to halt purchases of US soybeans. China, in turn, imposed special port fees on US ships entering Chinese ports, escalating tensions further.
Additionally, the People’s Bank of China (PBOC) set a stronger-than-expected USD/CNY reference rate, which prompted intraday selling of the greenback.
Technical outlook: DXY at risk of deeper losses
From a technical perspective, the DXY now trades near the lower boundary of a one-week consolidation range. A decisive break below this level could open the door for a steeper decline. With key US data releases on hold due to the shutdown, traders will look to comments from Federal Open Market Committee (FOMC) officials for fresh guidance during the North American session.
