The US Dollar Index remains below 98.00, influenced by expectations of further Federal Reserve rate cuts. Weaker US labor data has increased the perceived likelihood of these cuts. As of early Friday, the index is approximately 97.90, following prior gains. The CME FedWatch Tool indicates a 97% probability of a rate cut in October and a 91% chance in December. The ongoing US government shutdown adds further pressure, likely causing delays in key economic reports.

Tariff Revenues And The Greenback

A potential taxpayer rebate between USD 1,000–2,000, potentially funded from tariff revenues, is being considered by the Trump administration. Trump suggests tariff collections could reach USD 1 trillion annually, while Treasury estimates a figure exceeding USD 500 billion. The US Dollar, also known as the Greenback, was the most traded currency in 2022, accounting for over 88% of all global foreign exchange, with the Fed’s monetary policy significantly impacting its value. Quantitative easing, when enacted, tends to weaken the Dollar, whereas quantitative tightening generally strengthens it.

All content is for informational purposes, with market decisions carrying inherent risks. Thorough research is advised before investment decisions. Errors or omissions in information are not the responsibility of FXStreet or the author.

With the US Dollar Index struggling below the 98.00 level, we see a clear bearish sentiment building. This weakness is being driven by expectations of Federal Reserve rate cuts and the political uncertainty from a potential government shutdown. These factors are creating a difficult environment for the dollar to find support in the near term.

The probability of a Fed rate cut at its next meeting in November 2025 has now surged to over 90%, according to the CME FedWatch tool. This comes after the latest jobs report for September showed a cooling labor market, with payrolls growing by only 140,000, missing expectations. With core inflation also ticking down to 2.8% last month, the Fed has more room to ease policy, which puts direct pressure on the dollar’s value.

The ongoing government shutdown fears are compounding the issue, as they delay the release of crucial economic data and create general market unease. This uncertainty is likely to increase implied volatility in currency markets, a key consideration for options traders. We have seen this playbook before, where political gridlock in Washington translates directly into a weaker dollar.

Strategies For The Weakening Dollar

This situation reminds us of past periods of fiscal and monetary conflict, such as in late 2019 when the administration at the time considered stimulus checks funded by tariffs. That blend of expansionary fiscal policy alongside an easing Fed created sustained headwinds for the Greenback. We appear to be seeing echoes of that same dynamic playing out right now.

Given this outlook, we believe a primary strategy should be buying put options on the US Dollar Index or related ETFs. This approach allows for profiting from a further decline in the dollar while clearly defining maximum risk. Traders should consider options expiring in late October and November to capture the expected volatility around the next Fed meeting.

Alternatively, for those trading individual currency pairs, buying call options on EUR/USD and GBP/USD could be an effective strategy. The European Central Bank has signaled a more hawkish stance compared to the Fed, creating a policy divergence that favors the Euro. The EUR/USD pair is already testing the 1.0900 resistance level, and a dollar decline could see it break higher in the coming weeks.

Create your live VT Markets account and start trading now.