The US Dollar Index (DXY), which tracks the performance of the US Dollar (USD) against a basket of six major currencies, edged lower to around 99.30 during early European trading on Friday. Market participants await comments from Federal Reserve (Fed) policymakers and the preliminary University of Michigan Consumer Sentiment report for further guidance.
Government shutdown adds pressure on the dollar
The US government shutdown entered its tenth day on Friday after the Senate rejected funding bills that could have ended the impasse. Concerns over the economic fallout from the shutdown are weighing on the US Dollar, with traders assessing the potential impact on near-term growth and fiscal stability.
Fed minutes and market expectations
Minutes from the September FOMC meeting, released Wednesday, showed broad support for the September 25-basis-point rate cut and signaled the possibility of further reductions later this year. Some policymakers, however, adopted a more cautious approach, citing inflation concerns.
Markets currently price in nearly 95% odds of a 25-basis-point Fed rate cut in October, while expectations for an additional December reduction have eased slightly to 80%, down from 90% last week, according to the CME FedWatch Tool.
Fed officials’ comments eyed for market cues
New York Fed President John Williams stated on Thursday that he would be comfortable with another rate cut. Meanwhile, Fed Governor Michael Barr highlighted the challenges in assessing the appropriate monetary policy stance but reaffirmed that the September cut was warranted.
Traders will look for further signals from Fed speakers Austan Goolsbee and Alberto Musalem later on Friday. Any hawkish remarks could provide temporary support to the DXY, while dovish comments may reinforce the current softer tone.
