The US Dollar Index is falling and is close to 97.50, as concerns about a government shutdown push markets into uncertainty. The index, which measures the US Dollar against six major currencies, has dropped for five straight days, reaching about 97.60 during European trading. The US Bureau of Labor Statistics has paused its activities, which may delay the September Nonfarm Payrolls report. In addition, the recent US ADP Employment Change data shows a loss of 32,000 private sector jobs in September, with annual pay rising by 4.5%, which is lower than the expected gain of 50,000 jobs.

Federal Reserve Rate Cut Likelihood

There is increasing confidence that the Federal Reserve may cut interest rates due to issues in the labor market. The CME FedWatch Tool shows a 99% chance of a rate cut in October and an 87% chance of another cut in December. Chicago Fed President Austan Goolsbee supports rate cuts but is worried about inflation. In contrast, Dallas Fed President Lorie Logan advises caution, pointing out that inflation could rise to 2.4% without tariffs. At the same time, the US Dollar has weakened against major currencies, especially the New Zealand Dollar. A heat map illustrating the percentage changes among major currencies highlights this trend. With the US Dollar Index approaching 97.50, it seems likely to continue its downward trend. The ongoing government shutdown adds significant uncertainty, which usually affects a country’s currency negatively. As a result, we should explore strategies to benefit from further dollar weakness in the short term. The delay in the September Nonfarm Payrolls report disrupts typical trading patterns, leaving the market without essential data. A similar situation occurred during the October 2013 government shutdown, which delayed the jobs report by over two weeks and increased market volatility. In the absence of official data, we rely more on secondary reports like the ADP figures, which recently indicated an unexpected decline in private sector jobs.

Trading Opportunities and Strategies

Given the weak labor market signals and shutdown-related confusion, markets are pricing in a 99% chance of a Federal Reserve rate cut this month. This strong expectation makes shorting the dollar a common strategy, justified by the current data. Historically, when the FedWatch tool indicates such high probabilities, the Fed usually follows through, similar to its actions during the aggressive rate cuts in early 2020. For those trading derivatives, buying put options on the US Dollar Index (DXY) or on a dollar-pegged ETF is a straightforward way to position for a drop. Alternatively, purchasing call options on major currency pairs like EUR/USD or GBP/USD can provide similar exposure against the dollar. These trades entail defined risk while allowing for potential gains from a weaker dollar over the next few weeks. However, the uncertainty surrounding the delayed jobs report poses a significant risk. We expect a notable price movement when the shutdown concludes and the NFP data is released. Therefore, it might be wise to use volatility strategies, such as buying a straddle on the EUR/USD pair, to profit from large price movements in either direction. We should also consider the hawkish concerns from Fed officials regarding ongoing inflation. The latest Core CPI data from August 2025 indicates that inflation remains high at 3.1%, well above the Fed’s target, which validates these concerns. This suggests that a small, low-cost hedge, like buying far out-of-the-money call options on the dollar, could provide significant returns if the market’s dovish stance turns out to be an overreaction. Create your live VT Markets account and start trading now.

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