The US Dollar Index (DXY), which measures the Greenback’s performance against a basket of major currencies, trades slightly above the mid-99.00 level during Tuesday’s Asian session.
Despite holding its ground, the index shows little bullish conviction as investors remain cautious amid a weakening macroeconomic outlook and growing expectations of a dovish US Federal Reserve (Fed).
Weak fundamentals weigh on the dollar
The US Dollar remains under pressure following news that the Senate reached a bipartisan agreement late Sunday to end the nation’s longest government shutdown since October 1.
While the move has eased political uncertainty, the USD continues to struggle for traction as traders await a backlog of delayed economic data to assess the full impact of the shutdown on growth. Concerns over potential economic fallout are discouraging aggressive bullish positions, acting as a headwind for the currency.
Fed rate cut expectations cap gains
Adding to the bearish tone, markets increasingly anticipate a Fed rate cut in December. According to the CME FedWatch tool, investors now price in over a 60% chance of a 25-basis-point (bps) reduction, following last week’s University of Michigan survey showing a sharp drop in US consumer sentiment to 50.3 in November its lowest level since June 2022 from 53.6 in October. The weaker sentiment reinforces the view that the Fed may opt for additional easing to support the slowing economy.
Limited market activity amid Veterans Day
With US banks closed on Tuesday for Veterans Day, thin trading conditions could keep DXY rangebound. Market participants are now focusing on upcoming speeches from key Federal Open Market Committee (FOMC) members scheduled for Wednesday, seeking clearer guidance on the Fed’s policy outlook.
The tone of these remarks will likely be crucial in shaping short-term USD demand and determining whether the index can sustain its position above the mid-99.00s or face renewed downward pressure.
