US Dollar Weekly Forecast: Fed and shutdown take the driver’s seat
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UPGRADE- The US Dollar clocked its second consecutive week of gains.
- The Federal Reserve lowered its interest rates by 25 bps, as expected.
- Powell exercised caution, refuting the likelihood of a December cut.
The week that was
Following an apathetic start to the week, the US Dollar (USD) managed to regain impulse on the back of hopes for a US-China trade deal and Chair Jerome Powell’s prudent message after the Federal Reserve (Fed) matched consensus on Wednesday, trimming its Fed Funds Target Range (FFTR) by a quarter percentage point to 3.75%-4.00%.
As a result, the US Dollar Index (DXY) has embarked on a pronounced recovery to the proximity of the psychological 100.00 region, or fresh two-month tops, an unthinkable move just a while ago, when the Greenback was navigating more than three-year troughs and everything was pointing southwards.
The Greenback’s rebound picked up speed after the long-awaited Donald Trump–Xi Jinping meeting, held in South Korea, delivered yet another trade truce, much as markets had expected.
Still, there were a few clouds on the horizon. Investors kept a close eye on Washington, where the threat of a prolonged government shutdown continued to weigh on sentiment.
In addition, geopolitics stayed mostly in the background. The Russia–Ukraine conflict showed little change, and talk of a Trump–Putin summit remained just that: talk.
Looking at the US money market, US Treasury yields climbed alongside the buck, pushing to multi-week highs after the latest FOMC meeting as traders adjusted to a more cautious outlook.
Powell’s hawkish pivot
The Fed cut interest rates by a quarter point on Wednesday, a move backed by most but not all policymakers. The 10–2 vote brought the policy rate down to 3.75%–4.00%, broadly in line with expectations.
The Fed also said it would restart small-scale Treasury purchases to ease recent strains in money markets, a sign that liquidity has tightened more than officials are comfortable with.
At his usual press conference, Chair Jerome Powell admitted that the Fed is still divided on its next steps and cautioned markets not to count on another cut in December. The message underscored just how much uncertainty still surrounds the FOMC.
So far, futures markets now pencil in around 17 basis points of additional easing by year-end and roughly 82 basis points by the end of 2026.
December? We will see…
Following the rate cut by the Fed earlier in the week, several rate setters pushed back on expectations for more rate cuts, underscoring divisions within the bank after this week’s policy move.
Kansas City Fed President Jeffrey Schmid said he voted against lowering rates, warning that stubbornly high inflation and signs of broader price pressures could undermine confidence in the Fed’s commitment to its 2% target.
Dallas Fed President Lorie Logan also argued against easing, saying the central bank should have held steady and should avoid another cut in December. She pointed to a “balanced” labour market that doesn’t need additional support and inflation that remains too high for comfort.
Cleveland Fed President Beth Hammack echoed those concerns, saying she “would have preferred to hold rates steady” given that “inflation is still too high.”
Meanwhile, Atlanta Fed President Raphael Bostic tried to strike a middle ground, noting that “every meeting is live” and that policy will depend on incoming data. He welcomed Chair Powell’s reminder earlier this week that a December rate cut isn’t a done deal, despite strong market bets to the contrary.
Shutdown stalemate starts to sting
The government shutdown in Washington is wearing on, and the cracks are starting to show. After nearly a month of political deadlock, lawmakers remain dug in, with little sign of compromise.
The economic toll is beginning to mount: Hundreds of thousands of federal workers are still without pay, public services are grinding to a halt, and business confidence is slipping. The effects are now filtering into the data: Hiring is slowing, and GDP estimates are starting to edge lower.
At 31 days and counting, this is already the second-longest shutdown in US history. If it stretches past November 5, it’ll set a new record, hardly the kind of milestone anyone was hoping for.
A pause in the trade war, but questions linger
After weeks of tension, Presidents Donald Trump and Xi Jinping wrapped up a closely watched meeting in South Korea with the outcome most investors had anticipated, a truce in the trade war.
Following nearly two hours of talks, Trump said he’d reached an understanding with Xi: The US would ease some tariffs on Chinese goods, while Beijing would restart purchases of American soybeans, keep rare earth exports flowing, and step up efforts to curb fentanyl trafficking.
China’s commerce ministry later confirmed that both sides agreed to extend their temporary trade truce for another year, building on the progress made during talks between senior economic officials in Malaysia last week.
Back to tariffs, they can deliver short-term political wins, but the longer they linger, the more they risk feeding inflation and weighing on growth. Some in Trump's circle seem to be comfortable with the idea of a weaker Dollar to give exporters a competitive advantage. However, reshoring manufacturing is neither quick nor cheap, and tariffs alone are unlikely to achieve it.
What’s next for the Dollar?
The government shutdown is set to keep muddying the economic picture. With key data releases delayed, investors are flying with fewer instruments, and that makes next week’s ISM surveys on US business activity the main guidepost for anyone trying to gauge momentum.
With the latest FOMC meeting now in the rear-view mirror, attention shifts back to Fed-speak. Traders will be combing through comments from policymakers for clues on how the central bank is weighing softer inflation against a cooling labour market and, crucially, what that means for the next move on rates.
Technical views
If the current recovery gathers extra impulse, DXY is expected to meet the next hurdle at the psychological 100.00 barrier, ahead of the August top at 100.26 (August 1). Further up, the index could attempt a move to the weekly peak at 100.54 (May 29), seconded by the May ceiling at 101.97 (May 12).
Conversely, there is an initial support at the weekly trough at 98.03 (October 17), while a deeper pullback could put a test of the 2025 bottom at 96.21 (September 17) back on the radar, before the February 2022 valley at 95.13 (February 4) and possibly the 2022 floor at 94.62 (January 14).
In the meantime, the index continues to navigate below both its 200-day and 200-week SMAs at 100.49 and 103.29, respectively, keeping the negative outlook unchanged.
Momentum indicators seem to favour further gains in the short-term horizon: The Relative Strength Index (RSI) climbs past the 66 level, indicating that further upside is still on the table, while the Average Directional Index (ADX) near 20 suggests a trend that is slowly picking up pace.
US Dollar Index (DXY) daily chart
Bottom line
The near-term outlook for the US Dollar remains cloudy. The Fed may be under less political pressure, but markets are still leaning toward more rate cuts against a messy backdrop of tariff uncertainty, ballooning government debt, and a record-long shutdown.
Even when the Greenback manages a rebound, it hasn’t been able to hold on for long, at least not yet.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
- The US Dollar clocked its second consecutive week of gains.
- The Federal Reserve lowered its interest rates by 25 bps, as expected.
- Powell exercised caution, refuting the likelihood of a December cut.
The week that was
Following an apathetic start to the week, the US Dollar (USD) managed to regain impulse on the back of hopes for a US-China trade deal and Chair Jerome Powell’s prudent message after the Federal Reserve (Fed) matched consensus on Wednesday, trimming its Fed Funds Target Range (FFTR) by a quarter percentage point to 3.75%-4.00%.
As a result, the US Dollar Index (DXY) has embarked on a pronounced recovery to the proximity of the psychological 100.00 region, or fresh two-month tops, an unthinkable move just a while ago, when the Greenback was navigating more than three-year troughs and everything was pointing southwards.
The Greenback’s rebound picked up speed after the long-awaited Donald Trump–Xi Jinping meeting, held in South Korea, delivered yet another trade truce, much as markets had expected.
Still, there were a few clouds on the horizon. Investors kept a close eye on Washington, where the threat of a prolonged government shutdown continued to weigh on sentiment.
In addition, geopolitics stayed mostly in the background. The Russia–Ukraine conflict showed little change, and talk of a Trump–Putin summit remained just that: talk.
Looking at the US money market, US Treasury yields climbed alongside the buck, pushing to multi-week highs after the latest FOMC meeting as traders adjusted to a more cautious outlook.
Powell’s hawkish pivot
The Fed cut interest rates by a quarter point on Wednesday, a move backed by most but not all policymakers. The 10–2 vote brought the policy rate down to 3.75%–4.00%, broadly in line with expectations.
The Fed also said it would restart small-scale Treasury purchases to ease recent strains in money markets, a sign that liquidity has tightened more than officials are comfortable with.
At his usual press conference, Chair Jerome Powell admitted that the Fed is still divided on its next steps and cautioned markets not to count on another cut in December. The message underscored just how much uncertainty still surrounds the FOMC.
So far, futures markets now pencil in around 17 basis points of additional easing by year-end and roughly 82 basis points by the end of 2026.
December? We will see…
Following the rate cut by the Fed earlier in the week, several rate setters pushed back on expectations for more rate cuts, underscoring divisions within the bank after this week’s policy move.
Kansas City Fed President Jeffrey Schmid said he voted against lowering rates, warning that stubbornly high inflation and signs of broader price pressures could undermine confidence in the Fed’s commitment to its 2% target.
Dallas Fed President Lorie Logan also argued against easing, saying the central bank should have held steady and should avoid another cut in December. She pointed to a “balanced” labour market that doesn’t need additional support and inflation that remains too high for comfort.
Cleveland Fed President Beth Hammack echoed those concerns, saying she “would have preferred to hold rates steady” given that “inflation is still too high.”
Meanwhile, Atlanta Fed President Raphael Bostic tried to strike a middle ground, noting that “every meeting is live” and that policy will depend on incoming data. He welcomed Chair Powell’s reminder earlier this week that a December rate cut isn’t a done deal, despite strong market bets to the contrary.
Shutdown stalemate starts to sting
The government shutdown in Washington is wearing on, and the cracks are starting to show. After nearly a month of political deadlock, lawmakers remain dug in, with little sign of compromise.
The economic toll is beginning to mount: Hundreds of thousands of federal workers are still without pay, public services are grinding to a halt, and business confidence is slipping. The effects are now filtering into the data: Hiring is slowing, and GDP estimates are starting to edge lower.
At 31 days and counting, this is already the second-longest shutdown in US history. If it stretches past November 5, it’ll set a new record, hardly the kind of milestone anyone was hoping for.
A pause in the trade war, but questions linger
After weeks of tension, Presidents Donald Trump and Xi Jinping wrapped up a closely watched meeting in South Korea with the outcome most investors had anticipated, a truce in the trade war.
Following nearly two hours of talks, Trump said he’d reached an understanding with Xi: The US would ease some tariffs on Chinese goods, while Beijing would restart purchases of American soybeans, keep rare earth exports flowing, and step up efforts to curb fentanyl trafficking.
China’s commerce ministry later confirmed that both sides agreed to extend their temporary trade truce for another year, building on the progress made during talks between senior economic officials in Malaysia last week.
Back to tariffs, they can deliver short-term political wins, but the longer they linger, the more they risk feeding inflation and weighing on growth. Some in Trump's circle seem to be comfortable with the idea of a weaker Dollar to give exporters a competitive advantage. However, reshoring manufacturing is neither quick nor cheap, and tariffs alone are unlikely to achieve it.
What’s next for the Dollar?
The government shutdown is set to keep muddying the economic picture. With key data releases delayed, investors are flying with fewer instruments, and that makes next week’s ISM surveys on US business activity the main guidepost for anyone trying to gauge momentum.
With the latest FOMC meeting now in the rear-view mirror, attention shifts back to Fed-speak. Traders will be combing through comments from policymakers for clues on how the central bank is weighing softer inflation against a cooling labour market and, crucially, what that means for the next move on rates.
Technical views
If the current recovery gathers extra impulse, DXY is expected to meet the next hurdle at the psychological 100.00 barrier, ahead of the August top at 100.26 (August 1). Further up, the index could attempt a move to the weekly peak at 100.54 (May 29), seconded by the May ceiling at 101.97 (May 12).
Conversely, there is an initial support at the weekly trough at 98.03 (October 17), while a deeper pullback could put a test of the 2025 bottom at 96.21 (September 17) back on the radar, before the February 2022 valley at 95.13 (February 4) and possibly the 2022 floor at 94.62 (January 14).
In the meantime, the index continues to navigate below both its 200-day and 200-week SMAs at 100.49 and 103.29, respectively, keeping the negative outlook unchanged.
Momentum indicators seem to favour further gains in the short-term horizon: The Relative Strength Index (RSI) climbs past the 66 level, indicating that further upside is still on the table, while the Average Directional Index (ADX) near 20 suggests a trend that is slowly picking up pace.
US Dollar Index (DXY) daily chart
Bottom line
The near-term outlook for the US Dollar remains cloudy. The Fed may be under less political pressure, but markets are still leaning toward more rate cuts against a messy backdrop of tariff uncertainty, ballooning government debt, and a record-long shutdown.
Even when the Greenback manages a rebound, it hasn’t been able to hold on for long, at least not yet.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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