The US Dollar Index (DXY) is bouncing back after a 0.5% drop, now trading near 99.80. This change comes after the US saw a significant job loss of over 153,000 in October, the biggest drop for that month in over 20 years. This situation has led the Federal Reserve to consider cutting interest rates. The ongoing US government shutdown is causing worries for the dollar. There hasn’t been a Senate vote on the House-passed measure, and attempts to reopen the government have failed.

Inflationary Pressures Are Temporary

Alberto Musalem, the President of the St. Louis Fed, commented on inflation issues. He noted that the impact of tariffs is temporary, while long-term expectations remain stable. Despite some uncertainty, the US economy continues to show resilience and near-full employment. Trade tensions between the US and China have eased a bit. The US is thinking about suspending tariffs on China’s shipbuilding sector for a year. This step aims to gather public feedback and may ease tensions between the two economies. The US Dollar is widely used globally, making up over 88% of foreign exchange transactions. Changes in the Federal Reserve’s interest rates greatly influence its value, with lower rates usually weakening the dollar.

Weakness Expected in Coming Weeks

The US Dollar is facing significant challenges, and this weakness is likely to last in the coming weeks. The recent rise in job cuts—the largest for an October in over 20 years—has changed expectations for a Federal Reserve rate cut next month. As of November 7, 2025, market predictions show a 92% chance of a rate cut in December, making it hard to argue for a stronger dollar in the near future. The ongoing government shutdown, now the longest in US history at 36 days, adds to the uncertainty. This political stalemate weighs heavily on sentiment. The Congressional Budget Office recently projected a 0.2% drop in quarterly GDP for every week the shutdown lasts, supporting a bearish outlook for the dollar. Historically, extended shutdowns have led to economic downturns. Furthermore, Washington’s decision to ease trade tensions with China by suspending some tariffs makes the dollar less attractive as a safe-haven asset. This week’s Producer Price Index showed an unexpected decline, indicating that inflation risks may be dissipating faster than Fed officials expect. This gives the Fed more space to cut interest rates without fearing a spike in prices. For traders dealing in derivatives, this environment suggests a strategy that anticipates further dollar decline against major currencies. We recommend buying put options on the US Dollar Index (DXY) or setting up bearish credit spreads to reflect this viewpoint. Looking at the Fed’s policies in 2019, the dollar steadily fell once the rate-cutting cycle began, which could serve as a helpful historical reference in the coming weeks. Create your live VT Markets account and start trading now.

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