US Dollar Weekly Forecast: Fed and shutdown take the driver’s seat

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.