The US Dollar continued to fall due to several factors: soft comments from Federal Reserve officials, a decline in the Philadelphia business outlook, the ongoing US government shutdown, decreasing US Treasury yields, and worries about US regional banks’ exposure to auto bankruptcies. The Dollar Index (DXY) was last seen at 98.25. Fed comments hinted at potential interest rate cuts, with Waller suggesting a 25 basis point cut in October, depending on the job market. The Euro bounced back, supported by the French Prime Minister’s survival of no confidence votes and a weakening Japanese Yen, which put more pressure on the US Dollar. On the technical front, bullish momentum on the daily chart weakened, and the Relative Strength Index (RSI) decreased. Short-term risks are expected, with support levels at 98 and 97.50. Resistance levels are at 98.40, 99.10, and 99.80.

Fxstreet Insights

The FXStreet Insights Team shares key market observations from top experts, offering commercial notes and extra insights from both internal and external analysts. We are seeing ongoing weakness in the US Dollar, driven by soft comments from the Fed and the ongoing government shutdown, which has now lasted three weeks. The September 2025 inflation report showed core CPI falling to 2.8%, well below the yearly peak, giving the Fed room to ease its policies. This environment suggests caution for long dollar positions. The unexpected drop in the Philadelphia business outlook is not an isolated incident, as the September jobs report added only 95,000 jobs, missing expectations by a wide margin. With Fed officials linking future decisions to the job market, this weak data bolsters the case for a rate cut in October, which further pressures the dollar against other major currencies. For those trading derivatives, this situation favors bearish strategies on the dollar. Buying put options on the DXY index or USD-related pairs like USD/JPY could be a direct strategy for this anticipated decline. With economic uncertainty, we might also see a rise in implied volatility, making options pricing an important factor to monitor.

Economic Uncertainty

The decline in US Treasury yields reflects fears of an economic slowdown, similar to patterns we observed during previous easing cycles, like in 2019 when the Fed began cutting rates. Lower yields make the dollar less appealing to foreign investors looking for better returns. Traders should expect this trend to continue as long as the Fed stays dovish. We are also watching risks in the financial sector. Reports indicate that subprime auto loan delinquencies have reached a fifteen-year high, putting pressure on regional bank stocks. This particular weakness adds more negativity toward the US economy and its currency. The key technical level to watch on the DXY is the 98.00 support area, which lines up with the 50-day moving average. Create your live VT Markets account and start trading now.

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