US Dollar Index Drops Below 99 as Fed Rate-Cut Bets Intensify

The US Dollar Index (DXY) slipped to 98.90 during Monday’s North American session, retreating beneath the 99.00 level as traders increasingly price in a Federal Reserve rate cut at the December policy meeting. The shift in expectations follows a stream of softer U.S. economic data and easing inflation, which have strengthened the case for imminent monetary easing.

Markets Confident a Cut Is Coming

Expectations for a rate cut have surged sharply, with markets now assigning nearly a 90% probability of a reduction on Wednesday — up from 71% just one week ago, according to CME’s FedWatch Tool. The prospect of lower interest rates reduces the appeal of the U.S. dollar relative to other major currencies, placing downward pressure on the DXY.

Investors will closely monitor Fed Chair Jerome Powell’s press conference following the decision, looking for signals about the pace and size of potential cuts in early 2026. Any hawkish tone or hint of a slower easing cycle could help the dollar recover some ground in the short term.

Supportive Data May Limit Further Losses

Despite growing expectations of policy easing, the dollar may find support from pockets of resilience in the U.S. economy. The University of Michigan’s Consumer Sentiment Index rose to 53.3 in December, beating expectations of 52.0 and improving from November’s 51.0. The uptick suggests that consumer confidence is stabilizing, potentially softening the case for aggressive rate reductions.

Outlook

The near-term trajectory of the U.S. dollar hinges heavily on the Fed’s upcoming communication. If policymakers signal confidence in the inflation outlook and a willingness to ease steadily, the DXY may remain under pressure. However, stronger macroeconomic data or a cautious message from Powell could cap the decline or trigger a modest rebound.

Key Takeaways

• DXY trades near 98.90, slipping below the psychologically important 99.00 mark.
• Markets see ~90% chance of a Fed rate cut this week — sharply higher from last week.
• Michigan Consumer Sentiment Index rises to 53.3, providing some downside cushion.
• The post-meeting Powell press conference will be crucial for forward guidance.