The US Dollar Index (DXY) has softened to near 100.00 as the prolonged US government shutdown continues, impacting the economy and currency markets. The DXY retreated from its three-month high of 100.25, a significant milestone in the index's history. This retreat is a direct consequence of the ongoing shutdown, which has now entered its 36th day, matching the record set in 2019. The shutdown's impact on the economy is a major concern, potentially exerting selling pressure on the US Dollar. The Federal Reserve's recent actions and statements have also influenced market sentiment. Despite lowering its benchmark overnight borrowing rate, the Fed's chair, Jerome Powell, indicated that another cut this year is uncertain. This has reduced the likelihood of a December interest rate cut, which could provide support to the DXY. The upcoming release of the US October private payroll and ISM Services Purchasing Managers Index (PMI) reports will be crucial, with projections indicating a positive outcome for the US Dollar. The US Dollar, the official currency of the United States and a significant global currency, is heavily traded, accounting for over 88% of global foreign exchange turnover. Its value is primarily influenced by monetary policy, which is shaped by the Federal Reserve's dual mandates of price stability and full employment. The Fed's primary tool is adjusting interest rates, which directly impacts the USD's value. In extreme situations, the Fed can also implement quantitative easing (QE) to increase credit flow in a stuck financial system, typically leading to a weaker US Dollar. Conversely, quantitative tightening (QT) is positive for the US Dollar, as it involves the Fed stopping bond purchases and not reinvesting principal from maturing bonds. The US Dollar's role as the world's reserve currency and its historical significance in global finance make it a critical indicator of economic health and market sentiment.
