US Dollar Weekly Forecast: Attention now shifts to the Federal Reserve

The week that was

The US Dollar (USD) began the week on a firm footing, though its early momentum faded as the days went on. Even so, the US Dollar Index (DXY) managed to close with modest gains around the 99.00 mark, enough to erase the previous week’s pullback and keep alive the recovery from the 2025 valley recorded in mid-September.

The Greenback’s rebound gathered pace as US-China trade tensions hit an impasse, fuelling speculation of renewed diplomatic progress after President Donald Trump signalled plans to meet Chinese leader Xi Jinping next week.

At the same time, investors kept a wary eye on Washington, where the risk of a prolonged federal government shutdown continued to cloud sentiment. On the geopolitical front, the Russia–Ukraine conflict remained largely in the background, as did the long-discussed but still-unconfirmed Trump–Putin summit.

In the bond market, US Treasury yields found some resistance to their recent downtrend, edging higher in the latter half of the week and hinting at a pause in their monthly slide.

The Fed’s dovish tilt

Traders doubled down on bets that the Federal Reserve (Fed) will deliver a series of quarter-point rate cuts, after fresh inflation data showed price pressures easing slightly last month.

The latest figures from the Labor Department’s Bureau of Labor Statistics (BLS) revealed that the Consumer Price Index (CPI) rose 3.0% YoY in September, up marginally from August’s 2.9%, but still below expectations. The softer reading reinforced the view that inflation is gradually cooling, giving the Fed more room to ease policy.

Futures tied to the Fed’s benchmark rate now imply near certainty that officials will lower the target range to 3.75%–4.00% at its October 29 meeting. Furthermore, markets also see a 95% probability of another reduction in December, with the odds of a third cut in January rising to about 55%.

The shift highlights growing confidence that the Fed is edging toward a more accommodative stance, as inflation continues to move gradually closer to its 2% target.

Washington stalemate deepens as US shutdown enters fourth week

The US government shutdown drags on with no resolution in sight, as gridlock in Washington shows no signs of easing. Lawmakers have once again hit a stalemate, and with the Senate adjourning for the weekend, the next vote isn’t scheduled until Tuesday, a date few on Capitol Hill believe will bring a breakthrough.

Now in its 24th day, this is already the second-longest government shutdown in US history. If it stretches to November 5, it will become the longest ever, surpassing the 35-day record set in 2018–2019.

The impact is starting to bite. Hundreds of thousands of federal workers are missing paychecks, key public services are running on skeleton staff, and the uncertainty is beginning to seep into business confidence. Economists warn that each additional week of closure could shave tenths off quarterly GDP growth, with knock-on effects on consumer spending and job creation.

Tensions flared again in the Senate on Friday, as Democrats blocked a Republican-led proposal to pay only “essential” federal employees, while Republicans rejected a countermeasure to extend pay to furloughed workers as well. The impasse leaves both groups unpaid for now, adding fresh urgency to a political standoff that shows little sign of easing.

Tariffs: A tactical win, a strategic gamble

US President Donald Trump is set to meet Chinese President Xi Jinping next week during his trip to Asia, in what could mark a pivotal moment for relations between the world’s two largest economies. The meeting aims to alleviate trade tensions and revive negotiations that have yet to yield a lasting deal.

It will be the first face-to-face encounter between the two leaders since Trump returned to the White House in January. They have spoken twice by phone this year but have not met in person since 2019, during Trump’s first term.

The timing is critical. A fragile trade truce between Washington and Beijing is due to expire on November 10 unless both sides agree to extend it, while Trump has set November 1 as the deadline for imposing an additional round of 100% tariffs unveiled earlier this month.

That uneasy ceasefire has already been strained by a new round of tit-for-tat measures, including steep port fees on each other’s vessels, tighter export controls on advanced technologies and rare earth minerals, and renewed disputes over agricultural trade.

Beyond economics, the agenda is expected to touch on a growing list of geopolitical flashpoints, from Taiwan and fentanyl trafficking to broader strategic rivalry in the Pacific, underscoring how much more than trade is at stake when the two presidents sit down next 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 US Dollar?

The US government shutdown is set to keep muddying the economic picture, with key data releases pushed back and markets left with fewer clues about how the economy is really holding up.

That makes next week’s FOMC meeting, and Chair Jerome Powell’s press conference afterward, the main event for investors looking for direction. With an otherwise thin calendar, the Conference Board’s Consumer Confidence survey could also draw some interest as one of the few timely snapshots of sentiment.

After the meeting, traders will be parsing comments from Fed officials for any hint of how the central bank sees the balance between easing inflation and further cooling of the labour market, and what that might mean for the next move on rates.

Technical views

If the current recovery gathers further steam, DXY is expected to meet the next hurdle at the October top at 99.56 (October 9), prior to the August ceiling at 100.26 (August 1). Extra upside from here could put the weekly high at 100.54 (May 29) back on the radar, ahead of the May peak at 101.97 (May 12).

In contrast, there is an immediate contention zone at the weekly low at 98.03 (October 17). The loss of this level exposes a deeper pullback to the 2025 bottom at 96.21 (September 17), ahead of the February 2022 base at 95.13 (February 4) and possibly the 2022 valley at 94.62 (January 14).

Meanwhile, the index trades below both its 200-day and 200-week SMAs at 100.72 and 103.26, respectively, keeping the bearish outlook intact.

Momentum signals lean bullish: The Relative Strength Index (RSI) hovers above 57, suggesting that gains are still on the cards in the near term, while the Average Directional Index (ADX) near 19 is indicative of a trend that is slowly gathering steam.

US Dollar Index (DXY) daily chart

Bottom line

The near-term outlook for the US Dollar still appears clouded. The Fed may be under less political pressure these days, but markets are still betting on more rate cuts amid a messy mix of tariff risks, ballooning government debt, renewed trade tensions, and an extended government shutdown. Even when the Dollar manages a bounce, it hasn’t been able to hang on to those gains for long.

Most analysts still see more downside ahead, though with bearish positions already crowded, any further weakness is likely to come slowly, less a sharp fall, more a steady grind lower.