The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of six major currencies, traded slightly weaker around 97.95 during Asian hours on Monday as investors priced in growing risks of a potential US government shutdown.
US shutdown fears pressure the dollar
President Donald Trump will meet Democratic and Republican leaders at the White House on Monday as negotiations over government funding enter their final stage. Without a funding deal, parts of the government would shut down on Wednesday, the start of the 2026 fiscal year. Shutdown uncertainty could continue to exert downside pressure on the USD in the near term.
Inflation data reinforces Fed cut expectations
The US Bureau of Economic Analysis reported Friday that the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred inflation gauge, rose 2.7% year-on-year in August from 2.6% in July. Core PCE, which excludes food and energy, advanced 2.9% annually, unchanged from July and in line with forecasts. On a monthly basis, headline PCE rose 0.3% and core PCE gained 0.2%.
According to the CME FedWatch Tool, markets now assign a 90% probability of a Fed rate cut in October and nearly a 65% chance of another reduction in December.
Fed speakers in focus
Attention will turn to remarks from Fed officials later on Monday, including Governor Christopher Waller, Cleveland Fed President Beth Hammack, St. Louis Fed President Alberto Musalem, New York Fed President John Williams, and Atlanta Fed President Raphael Bostic. Any hawkish guidance could limit the USD’s downside and provide temporary support for the DXY.
