US Dollar Index slips below 99.00 due to rising odds of further Fed rate cuts

• US Dollar Index extends its losses due to the dovish tone surrounding the Fed policy stance.
• CME FedWatch shows markets pricing nearly a 96% chance of an October Fed cut and 95% in December.
• Trump warned of new trade restrictions if China enforces rare earth export controls and higher port fees.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its losses for the second successive session and trading around 98.80 during the European hours on Wednesday.

The Greenback faced challenges due to the increased likelihood of further rate cuts by the Federal Reserve (Fed) in 2025. CME FedWatch Tool indicates that markets are now pricing in nearly a 96% chance of a Fed rate cut in October and a 95% possibility of another reduction in December.

Additionally, the dovish sentiment surrounding the US Federal Reserve (Fed) policy outlook put downward pressure on the USD. Fed Chair Jerome Powell stated that the central bank is on track to deliver another quarter-point interest-rate reduction later this month, even as a government shutdown significantly reduces its read on the economy. Powell highlighted the low pace of hiring and noted that it may weaken further.

Meanwhile, Boston Fed President Susan Collins claimed that the policy is not on a preset path; some scenarios would keep rates steady, and that policy would remain restrictive even with more easing.

The US Dollar also draws downward pressure as traders adopt caution amid renewed trade tensions between the United States (US) and China, the world's two largest economies. US President Donald Trump criticized China on Wednesday for its recent protectionist trade policies, threatening additional targeted trade restrictions if China proceeds with imposing new rare earth mineral export controls and increased port fees for foreign container ships in Chinese ports.

The US and China decided to charge additional port fees on ocean shipping companies that transport everything from holiday toys to crude Oil. The US is scheduled to start collecting fees on Tuesday. China also started to collect the special taxes on US-owned, operated, built, or flagged vessels, but stated that Chinese-built ships would be exempted from the levies.