The US Dollar Index is currently under 98.00, driven down by expectations of more rate cuts from the Federal Reserve. Recent weak labor data has heightened the chance of these cuts. As of early Friday, the index stands at about 97.90, though it has seen some gains recently. The CME FedWatch Tool shows a 97% likelihood of a rate cut in October and a 91% chance in December. Additionally, the ongoing government shutdown is likely to cause delays in important economic reports, adding more pressure on the dollar.

Tariff Revenues And The Greenback

The Trump administration is considering a taxpayer rebate of USD 1,000–2,000, potentially funded by tariff revenues. Trump claims that tariff collections could total USD 1 trillion yearly, while the Treasury estimates it at over USD 500 billion. The US Dollar, often called the Greenback, was the most traded currency in 2022, making up more than 88% of global foreign exchange. The Federal Reserve’s monetary policy plays a big role in determining its value. Typically, quantitative easing weakens the Dollar, while quantitative tightening strengthens it. All content is for informational purposes only, and market decisions carry risks. It is essential to do thorough research before making investment decisions. FXStreet and the author are not responsible for any errors or omissions. With the US Dollar Index dropping below 98.00, there is a clear sense of bearish sentiment. This decline is largely due to anticipated Federal Reserve rate cuts and the uncertainty from a potential government shutdown. These factors make it hard for the dollar to gain support in the near future. According to the CME FedWatch Tool, there is now more than a 90% chance of a Fed rate cut at the meeting in November 2025. This follows a September jobs report showing a cooling labor market, with only 140,000 payrolls added, falling short of expectations. Core inflation also dipped to 2.8% last month, giving the Fed more leeway to ease policy, further exerting pressure on the dollar. The fears surrounding the government shutdown are adding fuel to the fire, causing delays in essential economic data and increasing market unease. This uncertainty likely raises implied volatility in currency markets, a crucial factor for options traders. We’ve seen this pattern before; political turmoil in Washington often leads to a weaker dollar.

Strategies For The Weakening Dollar

This scenario recalls past times of fiscal and monetary tension, like late 2019, when stimulus checks funded by tariffs were being considered. The mix of expansionary fiscal policy and a loosening Fed created strong headwinds for the Greenback, and we seem to be in a similar situation today. Given this outlook, a key strategy could be to buy put options on the US Dollar Index or related ETFs. This allows profit potential from a further drop in the dollar while clearly defining the maximum risk. Traders might consider options expiring in late October and November to take advantage of the expected volatility around the next Fed meeting. Alternatively, traders focused on individual currency pairs might find success by buying call options on EUR/USD and GBP/USD. The European Central Bank has taken a more hawkish stance than the Fed, creating a divergence in policy that benefits the Euro. The EUR/USD pair is already testing the 1.0900 resistance level, and a decline in the dollar could lead to it breaking through higher in the coming weeks. Create your live VT Markets account and start trading now.

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