US Dollar Index (DXY) slides to 97.50, one-week low amid Fed rate cut bets, government shutdown

• The USD continues to lose ground for the fourth consecutive day on Wednesday.
• Fed rate cut bets and the US government shutdown contribute to the ongoing slide.
• The US ADP report and the US ISM Manufacturing PMI eyed for short-term impetus.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, remains under some selling pressure for the fourth straight day and drops to a one-week low heading into the European session on Wednesday. The index is currently placed around mid-97.00s, down nearly 0.35% for the day, and seems vulnerable to weaken further amid a combination of negative factors.

Despite Federal Reserve (Fed) Chair Jerome Powell's cautious remarks, traders have been pricing in the possibility of two more interest rate cuts by the US central bank this year. In fact, the CME Group's FedWatch Tool indicates a nearly 95% chance of a rate reduction at the next FOMC meeting in October and an over 75% probability of another rate cut in December. This, along with a partial US government shutdown, continues to undermine the USD and validates the near-term negative outlook.

A Republican spending bill failed to pass through the Senate on Tuesday, forcing the US government to start shutting down its operations from 04:00 GMT this Wednesday. The immediate effect of a government shutdown will likely be a delay in key US macro releases, including the closely-watched US Nonfarm Payrolls (NFP) report on Friday. Meanwhile, a prolonged shutdown could have an adverse effect on economic performance, which further backs the case for additional near-term USD downfall.

Traders now look forward to the release of the US ADP report on private-sector employment and the US ISM Manufacturing PMI for some impetus later during the North American session. Apart from this, speeches from influential FOMC members might contribute to producing short-term trading opportunities around the USD.