US Dollar Weakens as Fed Rate Cut Looms.
US Dollar Index Slips Below 99.00 as Softer US CPI Data Strengthens Fed Rate Cut Bets
Market Overview
The US Dollar Index (DXY) extended its decline on Monday, trading near 98.80 in early Asian hours after slipping below the key 99.00 mark. The Greenback weakened as investors priced in a growing likelihood of a Federal Reserve rate cut this week, following a softer-than-expected inflation report.
The DXY, which tracks the USD against six major peers, remains under pressure amid dovish monetary expectations and improving global risk sentiment.
Subdued Inflation Reinforces Rate Cut Expectations
Last week’s US Consumer Price Index (CPI) data reinforced market confidence that the Fed will deliver another 25-basis-point rate reduction on Wednesday, lowering the benchmark rate from 4.25% to 4.00%.
Headline CPI rose 3.0% year-on-year in September, just below the 3.1% forecast, while core CPI—which strips out volatile food and energy components—also eased to 3.0% from 3.1% in August. On a monthly basis, headline and core inflation climbed 0.3% and 0.2%, respectively, both undershooting expectations.
The data suggest inflation pressures are stabilizing but remain contained, giving the Federal Reserve more flexibility to support growth through additional easing.
Trade Optimism Limits Downside for the Dollar
Despite soft inflation, the Dollar’s downside was somewhat cushioned by improving sentiment around US–China trade relations. US Treasury Secretary Scott Bessent confirmed that “productive discussions” during the ASEAN Summit in Kuala Lumpur helped prevent the introduction of 100% tariffs on Chinese imports.
Bessent also hinted that China could delay its rare earth export licensing program by one year, signaling progress toward a more stable trade environment. Market focus now shifts to Thursday’s meeting between Presidents Donald Trump and Xi Jinping, where both leaders are expected to finalize the framework for a potential trade agreement.
Technical Outlook
The DXY remains below key resistance at 99.00, with immediate support seen around 98.60. A sustained move below this level could expose the index to further declines toward 98.30, while recovery above 99.00 may attract fresh buying interest.
Momentum indicators suggest mild bearish pressure in the near term, although improving risk sentiment and trade optimism could limit deeper losses.
What Traders Are Watching
- Federal Reserve rate decision on Wednesday (expected -25 bps)
- Trump–Xi meeting for US–China trade developments
- US labor market data and Fed’s forward guidance
- DXY key levels: resistance at 99.00, support at 98.60 and 98.30
Summary
The US Dollar Index weakened below 99.00 as subdued inflation reinforced expectations of a Fed rate cut this week. While dovish policy bets weigh on the Greenback, optimism surrounding trade talks between the US and China continues to support broader market sentiment. Traders now await the Fed’s policy announcement and the Trump–Xi summit for further direction.
News FAQ
Q: Why did the US Dollar Index fall below 99.00?
The Dollar weakened after US inflation data came in softer than expected, strengthening market expectations for a Federal Reserve rate cut this week.
Q: What are the latest US inflation figures?
Headline CPI rose 3.0% year-on-year in September, slightly below the 3.1% forecast, while core CPI also eased to 3.0%. Monthly gains were 0.3% for headline and 0.2% for core inflation.
Q: How likely is a Fed rate cut?
Markets have nearly fully priced in a 25-basis-point cut at the upcoming Fed meeting, which would bring the policy rate down to 4.00%.
Q: How are US–China trade developments affecting the market?
Optimism around progress in trade talks and the upcoming Trump–Xi meeting has improved risk sentiment, partially offsetting Dollar losses.
Q: What’s next for the DXY?
Key support lies near 98.60, with 99.00 acting as immediate resistance. The index’s next move will likely hinge on the Fed’s rate decision and the outcome of the US–China discussions.
Disclaimer
This article is for informational purposes only and does not constitute financial or investment advice. Market data and economic indicators are subject to change. Readers should conduct independent research or consult a licensed financial advisor before making trading or investment decisions.
