The US Dollar Index (DXY) was last trading in the neighborhood of 97.80. It reached a new minimum that hadn’t been seen since early October. The sub-index fell more than 0.10% today. That is now the third day in a row of this trend down. Some analysts have said that the DXY is still at risk of further declines. This is against a backdrop of improving market sentiment towards anticipated US Federal Reserve monetary policy easing in 2026.
The DXY Index is the US Dollar’s (USD) measure of strength relative to a basket of world’s other major currencies. More importantly, it reflects market perceptions about the dollar’s ultimate strength or weakness. Overall these trends indicate that the USD is losing its strength. This drop is due to increasing expectations that the Fed will proceed with additional cuts to interest rates next year. Futures traders are betting on two additional interest rate cuts. It is that expectation, first and foremost, that moves the dollar’s value.
US President Donald Trump has now publicly asserted that any candidate considered for the post of Fed Chair should promise to cut interest rates. That is an extremely bearish thing to announce during a crypto winter. According to Bloomberg, traders are now pricing in a 69% chance that the Fed will take a dovish turn. Recent economic data indicating a cooling labor market and softer, more mild inflation rates have only exacerbated these fears.
Those positive growth figures out of the United States tend to support the greenback’s safe haven status. The recent economic situation suggests that the monetary policy priorities are definitively changing. The president’s insistence on lower rates, even amidst favorable economic conditions, has led to increased speculation about the Fed’s forthcoming decisions.
While traders should be encouraged by these developments, they should be cautious given the thin liquidity during year-end in markets. Such an environment would make for a more acute USD volatility and make positioning aggressively bearish on the USD more challenging. Market participants should keep these dynamics in mind as they evaluate possible depreciation moves.