The Federal Reserve's cautious stance supported the dollar index's five-day winning streak, while government shutdowns and manufacturing weakness could pose potential headwinds.
2025-11-04 13:52:38
The US dollar index (DXY) continued its strong performance in Asian trading on Tuesday, trading around 99.90, marking its fifth consecutive day of gains. The main drivers of the dollar's strength were investors' cautious expectations for the Federal Reserve's December monetary policy and the market's repricing of a slower pace of interest rate cuts.
According to data from the CME FedWatch tool, the market currently only expects a 65% probability of the Federal Reserve cutting interest rates in December, a significant drop from 94% a week ago.
Last week, Federal Reserve Chairman Jerome Powell stated after the meeting that whether to continue cutting interest rates in December was "uncertain," and emphasized that policymakers would adopt a "wait-and-see" approach until official data resumes being released. This statement effectively curbed market bets on further easing, driving the dollar to continue strengthening across a basket of currencies.
However, the upward momentum of the US dollar may be affected by domestic political and economic uncertainties in the United States. Currently, the US government shutdown has entered its sixth week, and Republicans and Democrats in Congress are still deadlocked on an appropriations bill, resulting in federal employees not receiving their salaries for several weeks.
Analysts point out that if the shutdown continues, it could weaken consumer confidence and dampen business investment, thus putting medium-term pressure on the dollar. On the economic data front, US manufacturing activity slowed further in October.
The U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) fell to 48.7 from 49.1 in September, below market expectations of 49.5, indicating that the manufacturing sector remains in contraction territory while price pressures have eased somewhat.
This data reinforced market concerns about a slowdown in economic growth. Investors are awaiting factory orders and JOLTS job openings data to be released later in the day to assess the actual performance of the labor market and the industrial sector.
JPMorgan economist David Kelly noted, "Powell's cautious comments have led the market to reassess the Fed's rate-cutting path, while weak manufacturing data reminds us that the US economy still faces the risk of slowing growth. The dollar may remain strong in the short term, but its gains could be limited if the government shutdown drags down the economy."
From a technical perspective, the US dollar index maintains a steady upward structure above 99.50, with short-term moving averages showing a bullish alignment and the 14-day Relative Strength Index (RSI) hovering around 60, indicating that bulls still dominate. If it breaks through the key resistance level of 100.20, the US dollar index is expected to further test 100.80.
Conversely, if the price falls below the 99.40 support level, it may pull back to the 99.00 area.
Editor's Note:
The current strength of the US dollar index reflects more of the market's reaction to the Federal Reserve's cautious stance than an improvement in the fundamentals of the US economy. If the government shutdown continues to drag down economic activity and put pressure on manufacturing and the job market, the dollar may experience a technical pullback from its short-term highs.
Overall, market sentiment is shifting from "interest rate cut expectations" to "economic concerns," which means that the dollar's dominance may experience more volatility before the end of the year.
According to data from the CME FedWatch tool, the market currently only expects a 65% probability of the Federal Reserve cutting interest rates in December, a significant drop from 94% a week ago.
Last week, Federal Reserve Chairman Jerome Powell stated after the meeting that whether to continue cutting interest rates in December was "uncertain," and emphasized that policymakers would adopt a "wait-and-see" approach until official data resumes being released. This statement effectively curbed market bets on further easing, driving the dollar to continue strengthening across a basket of currencies.
However, the upward momentum of the US dollar may be affected by domestic political and economic uncertainties in the United States. Currently, the US government shutdown has entered its sixth week, and Republicans and Democrats in Congress are still deadlocked on an appropriations bill, resulting in federal employees not receiving their salaries for several weeks.
Analysts point out that if the shutdown continues, it could weaken consumer confidence and dampen business investment, thus putting medium-term pressure on the dollar. On the economic data front, US manufacturing activity slowed further in October.
The U.S. Institute for Supply Management (ISM) Manufacturing Purchasing Managers' Index (PMI) fell to 48.7 from 49.1 in September, below market expectations of 49.5, indicating that the manufacturing sector remains in contraction territory while price pressures have eased somewhat.
This data reinforced market concerns about a slowdown in economic growth. Investors are awaiting factory orders and JOLTS job openings data to be released later in the day to assess the actual performance of the labor market and the industrial sector.
JPMorgan economist David Kelly noted, "Powell's cautious comments have led the market to reassess the Fed's rate-cutting path, while weak manufacturing data reminds us that the US economy still faces the risk of slowing growth. The dollar may remain strong in the short term, but its gains could be limited if the government shutdown drags down the economy."
From a technical perspective, the US dollar index maintains a steady upward structure above 99.50, with short-term moving averages showing a bullish alignment and the 14-day Relative Strength Index (RSI) hovering around 60, indicating that bulls still dominate. If it breaks through the key resistance level of 100.20, the US dollar index is expected to further test 100.80.
Conversely, if the price falls below the 99.40 support level, it may pull back to the 99.00 area.
Editor's Note:
The current strength of the US dollar index reflects more of the market's reaction to the Federal Reserve's cautious stance than an improvement in the fundamentals of the US economy. If the government shutdown continues to drag down economic activity and put pressure on manufacturing and the job market, the dollar may experience a technical pullback from its short-term highs.
Overall, market sentiment is shifting from "interest rate cut expectations" to "economic concerns," which means that the dollar's dominance may experience more volatility before the end of the year.
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