The US dollar index stabilized around 97.8 after a volatile week, as markets downplayed the immediate economic impact of the US government shutdown, but broader concerns persist regarding policy uncertainty, inflation risks, and a softening labor market. Federal Reserve commentary and market expectations point towards potential further interest rate cuts despite some indications of gradual economic slowdown.
- The dollar index stabilized around 97.8 after facing heightened volatility.
- Markets view the US government shutdown as having little immediate economic impact.
- The shutdown added to broader concerns over policy uncertainty, inflation risks and labor market softness.
- Treasury Secretary warned the funding lapse could weigh on GDP growth.
- President threatened sweeping federal layoffs to pressure Democrats.
- A Fed President said last month’s rate cut was appropriate to guard against sharper job market deterioration.
- The same Fed President noted the slowdown has been gradual and signaled little urgency for further easing.
- Markets are nearly fully pricing in another 25 basis point cut this month, with another reduction expected by December.
Overall, the dollar’s near-term stability is being tested by a combination of factors. While a government shutdown may not have an immediate major impact, underlying anxieties about the economic outlook and potential further monetary easing put downward pressure on the currency. The possibility of additional interest rate cuts, driven by concerns over a slowing job market, suggests that the dollar’s strength could be challenged in the coming months.