Insights 
VT 
The US Dollar Index (DXY) experienced modest losses, trading near 98.60 during the Asian session on Tuesday. Concerns over the ongoing US government shutdown, now in its 21st day, may affect economic activity and the USD’s performance. Traders anticipate the US September CPI inflation data release on Friday amid the government shutdown. Both headline and core CPI are expected to see a 3.1% annual increase in September. Any inflation data surpassing expectations could boost the US Dollar.
Fed Officials Openness
Fed officials, including Christopher Waller and Alberto Musalem, have expressed openness to interest rate cuts if economic risks persist. Stephen Miran has shown support for more aggressive cuts at upcoming meetings. These dovish policy remarks could pressure the USD in the short term. The DXY’s decline might be limited as US-China trade tensions ease slightly, despite ongoing market uncertainty.
The US Dollar is the official currency of the United States and the ‘de facto’ currency in multiple countries, accounting for over 88% of global foreign exchange turnover. The Federal Reserve’s monetary policy, including interest rate adjustments, significantly influences the value of the USD. Quantitative easing, by increasing credit flow, could weaken the USD, while quantitative tightening usually strengthens it.
Looking back, the dollar’s softness around the 98.50 level was a feature of a very different monetary environment. Today, we see the DXY holding much stronger ground, currently trading near 104.50. The market dynamics are now governed by the consequences of the aggressive rate-hiking cycle that began in 2022, not the dovish sentiment from former Fed officials.
The anxieties from that period, such as the 35-day government shutdown in late 2018 and early 2019, seem like minor disruptions in hindsight. Our current focus is on the stubbornness of inflation, which, according to the latest data for September 2025, is holding at 3.3%, still well above the Fed’s target. This sustained price pressure suggests that traders should be positioned for volatility, perhaps by using options to hedge against sharp moves in the dollar following upcoming economic data releases.
Federal Funds Rate and Fed’s Communication
The calls for rate cuts mentioned in the past stand in stark contrast to our present reality. After peaking at 5.50% in 2023, the Federal Funds Rate has only been modestly trimmed to 4.75%, and the Fed’s communication continues to signal a “higher for longer” stance. Derivative traders should therefore be wary of betting on significant rate cuts and might consider strategies that benefit from a stable or slowly declining short-term interest rate environment.
Similarly, while US-China trade tensions remain a factor, the narrative has shifted from tariffs to strategic competition in technology and investment. The old fears of a full-blown trade war have been replaced by a more complex landscape that impacts specific sectors rather than the entire market. This environment calls for more nuanced trades, such as using derivatives to play divergences between the dollar and currencies sensitive to Chinese economic policy.
