The week that was
This week, the US Dollar has faced significant challenges. It spent every session on the defensive, pulling the Dollar Index (DXY) back from last week’s gains and putting the focus firmly on the downside for now.
The pressure has been broad-based, with US Treasury yields slipping across the curve, and holiday-thinned trading around Thanksgiving giving little support for the Greenback. The market’s ongoing shift toward pricing in more Federal Reserve (Fed) rate cuts has been the dominant driver, leaving the DXY struggling to push beyond what now looks like a short-term ceiling around 100.40.
Adding to the currency’s challenges, Fed officials have maintained a divided stance on the monetary policy outlook, particularly regarding the pace and extent of rate cuts, which has left investors cautious and the Greenback vulnerable.
The Fed’s cautious view seems to be fizzling out
The Fed’s late-October meeting delivered exactly what markets had expected, a quarter-point rate cut, passed by a solid 10–2 vote. That move took the benchmark rate down to 3.75–4.00%, broadly in line with forecasts, but still enough to stir some internal debate.
What surprised many wasn’t the cut itself, but the Fed’s quiet decision to resume small-scale Treasury purchases. Officials said it was a technical move to ease emerging strains in money markets. The deeper message, however, was unmistakable: Liquidity had tightened more than they were comfortable with.
At his press conference, Chair Jerome Powell emphasised the uncertainty. He acknowledged the division within the committee and cautioned investors against taking the December cut for granted. The tone was cautious, a clear sign that policymakers are still wrestling with mixed signals: Inflation remains sticky while the labour market is cooling, but it is not collapsing.
Markets took Powell at his word, mostly, but not entirely. That said, there is still nearly an 80% chance of another cut at the December 10 meeting, and roughly 90 basis points for easing are pencilled in by the end of 2026.
December rate cut: A close call
Federal Reserve officials continued to lay out their views this week ahead of the blackout period, which kicks off on Saturday. The verdict for the next decision appears far from clear.
That said, Fed Governor Christopher Waller said on Monday that the latest figures pointed to a still-fragile US labour market, weak enough, in his view, to justify another 25-basis-point rate cut when policymakers meet on December 9–10. He also noted that what happens next would depend heavily on a “flood” of upcoming data as agencies clear backlogs left by the government shutdown.
Meanwhile, Federal Reserve Governor Stephen Miran suggested that the softening in employment was a direct result of the Fed’s current short-term rate setting. Miran was said to have renewed his push for more forceful rate cuts, arguing that inflation pressures should continue to fade over time.
What’s in store for the US Dollar
With recent data disruptions still causing uncertainty, markets are left guessing not only what the numbers will show but also when they’ll actually arrive. Even so, attention remains firmly on two key releases: The Fed’s preferred inflation gauge, the PCE index, and the upcoming ISM surveys on business activity.
From here, though, the narrative will quiet down. Fed officials have now entered their pre-meeting ‘radio silence’, leaving markets without fresh policy signals until the next interest rate decision on December 10.
Technical landscape
Since pushing above the 100.00 mark earlier this month, the US Dollar Index (DXY) has been in a corrective phase.
For the outlook to turn convincingly bullish again, the index still needs to clear the key 200-day SMA at 99.70 in a convincing fashion. Thereafter, it will have to overcome its recent high at 100.39 (November 21), ahead of the weekly peak at 100.54 (May 29) and the next major level at 101.97 (May 12).
On the downside, there is immediate contention on the November floor at 98.99 (November 13), prior to the provisional 55- and 100-day SMAs at 98.84 and 98.54, respectively. The loss of this region could spark a deeper pullback to the weekly trough at 98.03 (October 17) before the 2025 bottom at 96.21 (September 17). Extra losses from here should retarget the February 2022 valley at 95.13 (February 4) and the 2022 base at 94.62 (January 14).
Momentum signals have cooled slightly: The Relative Strength Index (RSI) remains just below the 50 yardstick, while the Average Directional Index (ADX) around 14 suggests the current trend is modest in strength, but not gone.
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Bottom line
The US Dollar’s short-term outlook has taken a knock in recent days, with momentum clearly no longer on its side. Still, it’s not all downside risk. A few Fed officials are maintaining a hawkish stance, which should help stabilise the Greenback temporarily.
What’s complicating things most is the hangover from the record-breaking government shutdown. On paper, the US economy appears reasonably balanced, but the absence of fresh data has left investors uncertain. Once those delayed reports finally land, they could carry even greater weight than usual, potentially reshaping expectations for the Fed’s next steps.
For now, policymakers appear to be watching the labour market most closely. But inflation hasn’t left the stage; it’s still hotter than the Fed is comfortable with. If those price pressures remain stubborn, officials may have to swing back toward inflation control sooner than markets anticipate, and that would almost certainly mean a more cautious Fed, regardless of the political noise.
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.
