US Dollar Index falls toward 97.50 as government shutdown threatens federal jobs

• US Dollar Index struggles as uncertainty rises due to the government shutdown.
• US Bureau of Labor Statistics halts activity, raising risk of delay in September Nonfarm Payrolls report due Friday.
• The CME FedWatch Tool indicates pricing in a 99% chance of a Fed rate cut in October.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its losses for the fifth successive session and trading around 97.60 during the European hours on Thursday. The Greenback faces challenges as traders adopt caution after the United States (US) government shutdown puts thousands of federal jobs at risk.

US Bureau of Labor Statistics has paused virtually all activity, which may cause the delay of the September US Nonfarm Payrolls (NFP) report due on Friday. On Wednesday, the US ADP Employment Change showed the private sector payrolls declined by 32,000 in September, while annual pay growth was 4.5%. This figure followed the 3,000 decrease (revised from a 54,000 increase) reported in August and came in below the market expectation of 50,000.

The labor market weakness boosts bets on further Federal Reserve (Fed) rate cuts. The CME FedWatch Tool suggests that markets are now pricing in a 99% chance of a Fed rate cut in October and an 87% possibility of another reduction in December.

Fed Bank of Chicago President Austan Goolsbee noted on Wednesday that although he supports further moves to lower interest rates, he is getting concerned about ongoing inflation pressures, specifically claims about a "one-time" inflation bump from tariffs.

Dallas Fed President Lorie Logan said late Tuesday that she "plans to exercise caution in further reductions," as anchored inflation expectations cannot be taken for granted. Logan added that, excluding tariff impacts, inflation may rise to 2.4%, driven by non-housing services.