The week that was
The US Dollar (USD) spent much of the week on the back foot, retreating from last week’s highs and leaving the US Dollar Index (DXY) with a softer tone. That said, the index found some support around the 98.00 area but stayed stuck in the sideways range it’s been in since early August.
The pressure on the Greenback had been building as markets priced in more Federal Reserve (Fed) rate cuts and as the federal government shutdown stalemate dragged on. Renewed US-China trade tensions only added to the gloom, weighing further on sentiment toward the buck.
In the domestic money market, Treasury yields drifted lower through most of the week before steadying a little heading into the weekend.
The Fed’s balancing act
The Fed trimmed rates by a quarter point at its September 17 meeting, citing slower hiring and growing risks to the labour market, even as inflation stays “somewhat elevated”.
Following the updated ‘dot plot’, policymakers still point to another half-point of easing before year-end, with smaller cuts likely stretching into 2026 and 2027.
Earlier this week, Chair Jerome Powell acknowledged that hiring momentum was cooling and stressed that the Fed would continue taking things “one meeting at a time”, trying to strike a balance between a weakening job market and still-sticky inflation.
The markets have heeded Powell’s warning, as traders are now placing bets on two additional rate cuts: one in October and another in December.
Futures are pricing in roughly 51 basis points of easing by year-end and about 124 basis points by the end of 2026.
Fed officials lean toward more easing as labour market softens
Federal Reserve officials struck a cautiously dovish tone this week, signalling rising concern about the labour market’s loss of momentum while maintaining a watchful stance on inflation. The overall message suggested that risks were shifting, and further policy easing was becoming more likely in the near term.
Philadelphia Fed President Anna Paulson said labour market risks appeared to be increasing, not dramatically, but noticeably, and noted that momentum seemed to be moving in the wrong direction.
Boston Fed President Susan Collins remarked that inflation risks now seemed somewhat more contained than before, while risks to the labour market looked greater. She added that another 25 basis points of easing might therefore be appropriate.
Fed Governor Stephen Miran argued that new risks had emerged in recent days, which in his view added urgency to cutting rates. He suggested that half-point moves might be preferable to bring policy closer to neutral more quickly.
Governor Christopher Waller said the data on the labour market supported another 25 basis point reduction at the next policy meeting on October 29.
Chair Jerome Powell noted that, while official employment data for September were delayed, the available evidence indicated that layoffs and hiring remained low. However, he also said that both households’ perceptions of job availability and firms’ perceptions of hiring difficulty continued to decline.
Vice Chair for Supervision Michelle Bowman reiterated that she still expects two more rate cuts before the end of the year.
Taken together, the remarks pointed to a Federal Reserve increasingly focused on the labour market’s softening rather than inflation pressures. While some policymakers were leaning toward a faster pace of easing, the overall tone suggested a preference for a gradual approach, with one cut likely in October and another by year-end.
Shutdown fatigue sets in as political divide widens
The US government shutdown has dragged into its 17th day, with no sign of a breakthrough after the Senate failed yet again to pass a funding bill, marking its tenth attempt this week. That makes it the third-longest shutdown in modern history, behind only those of 1995 and 2018–19.
Senate Majority Leader John Thune sent lawmakers home for the weekend after Thursday’s failed votes, meaning the impasse will stretch into next week. The House, meanwhile, hasn’t met since September 19 and has no plans to return until a deal is reached.
Roughly 900,000 federal workers have been furloughed, and another 700,000 are still on the job but unpaid. Courts are running out of funds, and many agencies are scaling back operations.
The deadlock shows how divided Washington is along party lines, with Republicans and Democrats pointing fingers at one another and little indication of agreement. The longer it goes on, the worse it becomes. It undermines public confidence, disrupts crucial data releases, and exacerbates the uncertainty surrounding the Fed’s already challenging policy outlook.
The tariff question: Short-term leverage, long-term risk
Of course, the trade front could not remain silent forever.
Beijing’s new export controls, particularly on rare-earth minerals and high-tech materials, have rattled Washington, with US officials calling them a calculated move to squeeze global supply chains. Trade Representative Jamieson Greer and Treasury Secretary Scott Bessent described the measures as a “global supply-chain power grab”. In response, President Trump has threatened to slap a 100% tariff on Chinese imports, a move he admits may not be sustainable but sees as leverage.
Despite the tension, both sides are maintaining the possibility of talks. Bessent is due to speak with Chinese Vice Premier He Lifeng later on Friday to try to stabilise negotiations, and Trump still expects to meet President Xi Jinping in South Korea in the coming weeks.
In the meantime, markets are on edge, wary that another flare-up could disrupt trade and dampen investment sentiment. Even a modest breakthrough from today’s call could help calm nerves ahead of the leaders’ meeting.
Stepping back, tariffs remain a tricky balancing act. They may score quick political points, but the longer they stay in place, the more they risk driving up prices for households and slowing growth. Some in Trump’s camp seem comfortable with a weaker Dollar to help exporters, but bringing manufacturing back home is a slow and costly process, and tariffs on their own won’t make it happen.
What’s next for the US Dollar?
The ongoing US government shutdown has delayed the release of the CPI report, which is now due on Friday, October 24, a data point markets had been eagerly waiting for.
With the Fed now in its blackout period, meaning no public comments from officials, the spotlight will shift to how the shutdown and US-China trade developments unfold in the coming days.
Technical views
The US Dollar looks set to stay in consolidation mode for now.
If DXY slips below its 2025 bottom at 96.21 (September 17), that could open the door to a move toward the February 2022 valley at 95.13 (February 4) and possibly the 2022 base at 94.62 (January 14).
On the other hand, the index faces immediate resistance at the August peak at 100.26 (August 1), seconded by the weekly top at 100.54 (May 29) and the May ceiling at 101.97 (May 12).
So far, the index remains below both its 200-day and 200-week SMAs at 100.98 and 103.25, respectively, keeping the bearish outlook unchanged.
Momentum signals show some improvement. That said, the Relative Strength Index (RSI) hovers around 51, suggesting that gains are still on the cards in the near term, while the Average Directional Index (ADX) near 20 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 is still hazy.
The Fed faces less political pressure, but markets continue to price in more rate cuts in a context of ongoing tariff risks, swelling government debt, renewed trade tensions, and the protracted US government shutdown. Even when the US Dollar bounces, it struggles to hold those gains.
Most analysts keep a negative view on the Greenback, but with short positions already crowded, any further decline may unfold more gradually, more of a grind than a sharp drop.
US-China Trade War FAQs
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.