- US Dollar Index drifts lower to near 98.70 in Tuesday’s early Asian session.
- Trump is expected to meet Chinese President Xi Jinping on Thursday in South Korea.
- The Fed is anticipated to cut its benchmark rate by 25 basis points on Wednesday.
The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, trades on a softer note around 98.70 during the early Asian session on Tuesday. The DXY edges lower on the prospect of a US interest rate cut. The Federal Reserve (Fed) interest rate decision will take center stage on Wednesday.
The Fed is widely expected to lower interest rates by another quarter point, bringing the benchmark rate to 3.75-4.00%, at its October meeting on Wednesday. The markets are now pricing in nearly a 97% chance of a quarter of a percentage point rate reduction at the Fed’s October meeting, according to the CME FedWatch tool.
The US government shutdown has sparked debate among Fed officials. Policymakers are weighing whether to reduce rates quickly to boost a weakening labor market or keep rates steady in the face of inflation that remains stubbornly above the Fed 2% target. The attention will shift to the press conference following the rate decision. Any dovish comments from Fed Chair Jerome Powell could drag the US Dollar lower against its rivals.
US Treasury Secretary Scott Bessent said on Sunday that the US and China both reached a preliminary consensus on key issues, including export controls, fentanyl trafficking, agricultural trade, and shipping levies. The talks paved the way for US President Donald Trump and his Chinese counterpart Xi Jinping to finalize a deal during their meeting in South Korea later on Thursday. Optimism over a possible US-China trade deal could lift the US Dollar in the near term.
