US Dollar Index remains above 98.00 despite Fed rate cut bets, government shutdown

• US Dollar Index gains ground after Kansas City Fed President Schmid deliver hawkish remarks on Monday.
• The CME FedWatch Tool suggests pricing in a 94% probability of a Fed rate cut in October.
• The White House walked back Trump's claim that government employees were already being laid off because of the shutdown.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending gains for the second successive session and trading around 98.20 during the Asian hours on Tuesday.

The Greenback received support from the hawkish remarks from the Kansas City Fed President Jeffrey Schmid on Monday. Schmid said that the Federal Reserve (Fed) must maintain its inflation credibility and stressed that inflation is too high. He added that monetary policy is appropriately calibrated.

However, the US Dollar may face challenges amid rising odds of further Federal Reserve (Fed) rate cuts in the upcoming meetings, along with ongoing government shutdown. The CME FedWatch Tool suggests that markets are now pricing in a 94% chance of a Fed rate cut in October and an 84% possibility of another reduction in December.

The US government shutdown has postponed the key economic data release, including September's Nonfarm Payrolls report. US ADP Employment Change and Job Openings data indicate a softening labor market and strengthen expectations of an imminent rate cut.

The White House backed off US President Donald Trump's claim on Monday that government employees were already being laid off due to the shutdown but cautioned that job losses could occur as the impasse appeared likely to extend into a seventh day. Meanwhile, the Republican-led Senate rejected competing funding measures for federal agencies for the fifth time. Democratic leader Chuck Schumer also refuted Trump's assertion that negotiations with Democrats were still taking place.