US Dollar Index (DXY) slides to over one-week low, seems vulnerable below mid-98.00s

• The USD drifts lower for the third straight day and is pressured by a combination of factors.
• Bets for more interest rate cuts by the Fed continue to dent sentiment around the Greenback.
• Economic risks stemming from the US government closure and trade war weigh on the buck.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, remains under some selling pressure for the third straight day and drops to an over one-week low during the Asian session on Thursday. The index is currently placed just below mid-98.00s and seems vulnerable to prolong the recent pullback from the highest level since early August, touched last week.

Dovish Federal Reserve (Fed) expectations, along with concerns that a prolonged US government closure and the US-China trade war would affect the economic performance, turn out to be key factors undermining the USD. In fact, traders have nearly fully priced in the possibility that the US central bank will cut interest rates by a 25-basis-points (bps) each at the October and December policy meetings.

The Senate once again failed to advance the House-passed GOP bill to fund the government for a ninth time on Wednesday as the shutdown stretched into a third week. Democrats remain defiant against US President Donald Trump's mass firing threats, while a federal judge temporarily blocked the Trump administration from firing federal workers amid the ongoing shutdown, which started on October 1.

Meanwhile, US-China trade tensions reignited in recent weeks after the US broadened tech restrictions and China outlined tighter export controls on rare earths. Moreover, both countries announced port fees on vessels linked to each other's fleets, fueling worries about an all-out trade war. US President Donald Trump said that he saw the US as locked in a trade war with China.

However, US Treasury Secretary Scott Bessent proposed a longer pause on high tariffs on Chinese goods if China halts its plan for strict export controls on critical minerals. Nevertheless, the uncertainty might continue to exert downward pressure on the USD and validate the near-term negative outlook. Traders now look to speeches from a slew of influential FOMC members for a fresh impetus.