The US Dollar Index (DXY) traded higher around 99.75 during the Asian session on Monday, extending gains as investors responded to the Federal Reserve’s (Fed) hawkish tone. The greenback’s momentum was further supported by diminished expectations for another rate cut this year, while market participants awaited the US October ISM Manufacturing PMI report due later in the day.
Fed’s cautious stance underpins USD strength
The Fed lowered interest rates by 25 basis points to a range of 3.75% 4.00% at its October meeting, as widely anticipated. However, Chair Jerome Powell signaled that this could mark the final reduction for 2024, emphasizing the need for more clarity on economic conditions before proceeding with additional easing. His remarks helped temper market bets on further cuts, bolstering the US dollar.
Supporting this hawkish bias, several Fed officials expressed concerns about inflation and suggested they would have preferred to leave rates unchanged. Dallas Fed President Lorie Logan and Cleveland Fed President Beth Hammack both indicated they would have voted to hold policy steady, while Kansas City Fed President Jeff Schmid noted that inflation remains “too high,” warranting caution. These comments collectively reinforced the USD’s bullish tone.
Market expectations for December cut decline sharply
According to the CME FedWatch Tool, traders now price in only a 68% probability of a 25-basis-point rate cut at the Fed’s December meeting, down from 93% a week earlier. The shift reflects growing confidence that the central bank will adopt a wait-and-see approach amid persistent inflation pressures and mixed labor market data.
Government shutdown risks linger
Meanwhile, prolonged political gridlock continues to cast uncertainty over the US economic outlook. The ongoing government shutdown now entering its sixth week has yet to see any progress toward resolution, as Republicans and Democrats remain at an impasse over a funding bill. While the dollar has so far remained resilient, concerns over the fiscal standoff could weigh on sentiment if the shutdown drags on further.
Technical outlook
Technically, the DXY maintains a firm tone above the 99.50 mark, with near-term support seen at 99.40 and 99.10. A sustained break above the 99.80 resistance zone could open the door toward the psychological 100.00 level. On the downside, a move below 99.40 would expose the index to additional pullbacks toward 99.00 and 98.75.
