The US Dollar Index is feeling pressure, trading close to 97.00 during the Asian session. This is largely due to worries about the independence of the Federal Reserve and a potential US government shutdown, as Congress continues to struggle with funding issues.

Impact of Fed Chair Announcement

President Trump’s upcoming announcement of a new Fed chair is also affecting the Dollar’s value. The markets are paying close attention. It’s expected that the Fed will keep interest rates steady at its January meeting after three cuts at the end of 2025. The US Dollar is the most widely traded currency in the world, accounting for over 88% of international forex transactions, with an average of $6.6 trillion traded daily in 2022. The Federal Reserve’s actions on monetary policy, like changing interest rates and implementing strategies such as Quantitative Easing, heavily influence the Dollar’s strength. Quantitative Easing, which was used during the 2008 financial crisis, usually weakens the Dollar by increasing the money supply. On the other hand, Quantitative Tightening means stopping bond purchases, which can strengthen the Dollar. Understanding these monetary policies helps explain why the Dollar’s value changes. Right now, the US Dollar is facing strong challenges, pushing the DXY down to 97.00 as the week begins. Two main factors are driving this weakness: uncertainty about the next Federal Reserve chair and the risk of a government shutdown before the January 30 deadline. This puts the Dollar at its lowest point since September of last year, 2025. Concerns about the new Fed chair are adding to the Dollar’s bearish sentiment. The leading candidate is seen as more dovish, which suggests a continuation of relaxed monetary policy like the rate cuts we saw in late 2025 when inflation dropped to a 2.9% annual rate. This situation may encourage traders to consider strategies that benefit from rising volatility, such as straddles on major currency pairs like EUR/USD.

Effects of Government Shutdown Fears

While anxiety about a government shutdown is adding to negative feelings around the Dollar, we should be careful not to exaggerate its direct impact. The extended shutdown in late 2018 and early 2019 didn’t significantly affect the DXY, as global demand for safe-haven assets outweighed domestic political issues. Thus, buying short-term put options on the Dollar solely due to shutdown fears might be a risky move. The immediate focus is on Wednesday’s Fed meeting, where we expect rates to remain unchanged. We will be looking for any hawkish comments in the press conference that may signal a pause in the easing cycle, which could provide temporary support for the Dollar. Currently, the market sees less than a 10% chance of a rate change; therefore, the real action will come from the Fed’s guidance on future policy. We think the most likely trend for the Dollar is downward, especially since the DXY has dropped from its 2024 highs above 106. In this environment, call options on gold and other commodities priced in dollars may be appealing, as they usually rise when the Dollar falls. Similarly, taking bearish positions on the Dollar against currencies with central banks that have a more aggressive outlook could be a wise strategy in the weeks ahead. Create your live VT Markets account and start trading now.

here to set up a live account on VT Markets now