The US Dollar Index (DXY) has taken a downturn, dropping to nearly 100.00, as the prolonged US government shutdown continues. This comes after the DXY hit a three-month high of 100.25, a significant milestone in the context of the ongoing shutdown. The shutdown, now in its 36th day, has reached a record-breaking length, matching the previous record set in 2019 during President Donald Trump's first term. This extended duration raises concerns about its impact on the US economy, potentially exerting selling pressure on the US Dollar. The Federal Reserve's recent actions, including lowering the overnight borrowing rate to a range of 3.75%-4.0%, have also influenced market dynamics. While the Fed's chair, Jerome Powell, indicated that another rate cut this year is not guaranteed, the likelihood of a December cut has decreased from 93% to 70%, which could provide support to the DXY. The upcoming release of the US October private payroll and ISM Services Purchasing Managers Index (PMI) reports, along with the ADP Nonfarm Employment Change, will be crucial in shaping the US Dollar's trajectory in the near term. The US Dollar, the official currency of the United States and a 'de facto' currency in many other countries, is the most traded currency globally, with an average of $6.6 trillion in daily transactions. Its value is significantly influenced by monetary policy, primarily set by the Federal Reserve, which aims to control inflation and foster full employment. The Fed's interest rate adjustments are a key tool in achieving these goals, impacting the US Dollar's strength. In extreme cases, the Fed can employ quantitative easing (QE), a measure to increase credit flow in a stuck financial system, which typically weakens the US Dollar. Conversely, quantitative tightening (QT) strengthens the currency by reducing bond purchases and reinvesting principal. The US Dollar's value is intricately tied to these monetary policy decisions, making it a critical indicator of the US economy's health.
