US Dollar Index hovers around 99.50 due to uncertainty surrounding Fed policy outlook

• US Dollar Index steadies as traders adopt caution amid uncertainty surrounding the Fed stance.
• CME FedWatch Tool indicates pricing in 71% odds of a Fed rate cut in December, up from 66% a day ago.
• Traders await further comments from Fed officials for additional clues on the policy outlook.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is remaining steady and trading around 99.50 during the Asian hours on Friday. The Greenback moves little as improving Federal Reserve (Fed) rate cut bets weaken the impact of the hawkish comments from the Fed Chair Jerome Powell.

According to the CME FedWatch Tool, markets are now pricing in a 71% probability of a Fed rate cut in December, up from 66% the previous day. This, however, marks a decline from nearly 91% earlier, after Fed Chair Jerome Powell cautioned during the post-meeting press conference that policymakers may need to take a wait-and-see approach until official data reporting resumes. Powell also added that another rate cut in December is far from certain, emphasizing that the outlook remains uncertain.

Fed Chair Powell also noted that the central bank is struggling to balance its dual mandate of controlling inflation and supporting employment due to limited data availability amid the ongoing US government shutdown.

The US Fed delivered a 25-basis-point rate cut on Wednesday, bringing down its benchmark rate to a range of 3.75%-4.0% in a 10-2 vote. The decision was not unanimous, as Fed Governor Stephen Miran supported a larger 50-basis-point cut, while Kansas City Fed President Jeffrey Schmid voted to keep rates unchanged.

Meanwhile, the meeting between Presidents Trump and Xi concluded with the US agreeing to reduce tariffs to 47% from 57% on Chinese goods, while China pledged to curb fentanyl exports, increase US soybean purchases, and suspend restrictions on rare earth exports.