Insights 
VT 
The US Dollar continued to decline due to dovish comments from Federal Reserve officials, a drop in the Philadelphia business outlook, the prolonged US government shutdown, falling US Treasury yields, and concerns about US regional banks’ exposure to auto bankruptcy. The Dollar Index (DXY) was last seen at 98.25 levels. Comments from Fed officials hinted at possible interest rate cuts, with Waller supporting a 25 basis point cut in October contingent on the labour market.
The Euro experienced a rebound, aided by the French Prime Minister’s survival of no confidence votes and the weakening of the Japanese Yen. These factors contributed to the softness of the US Dollar. On the technical side, bullish momentum on the daily chart weakened, with the Relative Strength Index (RSI) falling. Risks are anticipated to persist in the short term, with support identified at 98 and 97.50 levels. Resistance is noted at 98.40, 99.10, and 99.80 levels.
Fxstreet Insights
The FXStreet Insights Team curates key market observations from renowned experts, adding both commercial notes and additional insights from internal and external analysts.
We are seeing continued weakness in the US Dollar, driven by dovish Fed comments and the ongoing government shutdown, which has now entered its third week. The September 2025 inflation report showed core CPI dropping to 2.8%, well below the year’s peak, giving the Fed plenty of room to ease policy. This environment suggests being cautious on long dollar positions.
The surprise dip in the Philadelphia business outlook is not an isolated event, as we saw the recent September jobs report add only 95,000 jobs, missing expectations significantly. With Fed officials tying future moves directly to the labor market, this weak data strengthens the case for a rate cut at the upcoming October meeting. This puts further downward pressure on the dollar’s value against other major currencies.
For those trading derivatives, this outlook favors bearish strategies on the dollar. Buying put options on the DXY index or on USD-centric pairs like USD/JPY could be a direct way to play this anticipated decline. Given the economic uncertainty, we could also see a rise in implied volatility, making options pricing a key factor to watch.
Economic Uncertainty
The decline in US Treasury yields reflects these slowdown fears, a pattern we’ve seen in past easing cycles like the one back in 2019 when the Fed pivoted to cutting rates. This yield compression makes the dollar less attractive to foreign investors who are seeking better returns elsewhere. Traders should anticipate this trend continuing as long as the Fed remains dovish.
We are also monitoring risks in the financial sector, as reports show subprime auto loan delinquencies have now hit a fifteen-year high, pressuring regional bank stocks. This specific weakness adds another layer of negative sentiment against the US economy and its currency. The key technical level to watch on the DXY is the 98.00 support area, which aligns with the 50-day moving average.
