Insights 
VT 
Key Points
- The USDX index climbed to a nine-day high of 98.363 after the Fed minutes release.
- The Federal Reserve cut rates by 25 basis points this month, but some officials preferred no change.
The US dollar strengthened on Tuesday, rising to its highest level in over a week against a basket of major currencies after the release of minutes from the Federal Reserve’s latest policy meeting.
The USDX dollar index climbed to a nine-day high of 98.363, as traders reassessed the near-term outlook for US interest rates.
The minutes showed that while the Federal Reserve delivered a 25-basis-point rate cut this month, the decision was finely balanced.
Several officials were reluctant to support further cuts in the near future, with some indicating they could have backed leaving rates unchanged.
This tone contrasted with recent market expectations for a steady easing path and gave the dollar short-term support.
Fed Signals Caution on Pace of Easing
Although the minutes revealed hesitation around immediate follow-up cuts, most policymakers still agreed that interest rates could fall eventually if inflation continues to decline.
This nuance mattered for markets. It suggested the Fed remains data-dependent rather than committed to a preset easing cycle.
The immediate reaction reflected a recalibration rather than a reversal of expectations. Traders trimmed aggressive rate cut bets, supporting US yields and lifting the dollar, particularly against low-yielding currencies.
Dollar Bounce Sits Within a Broader Downtrend
Despite the recent uptick, the broader picture for the dollar remains weak. According to LSEG data, the dollar index is still on track to end the year down around 9%. This would mark one of its poorest annual performances in recent years.
The contrast between short-term firmness and longer-term weakness highlights the market’s dilemma.
While Fed officials appear cautious about cutting too quickly, traders continue to expect lower rates over time as inflation cools and growth moderates.
Technical Analysis
The US Dollar Index has seen choppy price action in recent months, with the latest bounce from the 95.81 support level offering a modest recovery back toward the 98.00 handle.
However, the broader trend remains under pressure, with price action staying below the 30-day moving average and the MACD still in negative territory—signalling weak momentum.
While the recent uptick hints at stabilisation, the index remains stuck in a sideways consolidation range between 97.00–99.00, with no clear bullish breakout in sight.
Only a sustained close above 99.00 would suggest a stronger recovery heading into Q1 2026.
Cautious Outlook as Data Dependence Dominates
The dollar may retain some support in the near term as markets digest the Fed’s cautious tone and scale back expectations for rapid easing.
However, with policymakers still open to lower rates if inflation falls, upside in the dollar may remain limited.
Upcoming inflation and labour market data will likely determine whether this rebound has further room to run or fades back into consolidation.
For now, the dollar appears set to trade in a narrow range, balancing short-term policy caution against a softer longer-term rate outlook.
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