US Dollar Index rises to near 100.00 due to cautious Fed policy outlook

• US Dollar Index receives support from fading likelihood of further Fed rate cuts.
• The CME FedWatch Tool suggests pricing in a 65% probability of a Fed rate cut in December.
• Market sentiment remain cautious amid the ongoing US government shutdown.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its winning streak for the fifth consecutive session and trading around 99.90 during the Asian hours on Tuesday. The Greenback receives support from the cautious sentiment surrounding the US Federal Reserve (Fed) policy stance for December.

Fed funds futures traders are now pricing in a 65% chance of a cut in December, down from 94% a week ago, according to the CME FedWatch Tool. The probability of a Fed rate cut in December decreased after cautious remarks from the Fed Chair Jerome Powell last week during the post-meeting press conference. Powell noted that another rate cut in December is far from certain and also cautioned that policymakers may need to take a wait-and-see approach until official data reporting resumes.

However, the US Dollar may face challenges as market caution prevails amid the ongoing government shutdown, which could fuel economic concerns in the United States (US). The US government impasse has now entered its sixth week with no easy endgame in sight amid a deadlock in Congress on the Republican-backed funding bill. Meanwhile, federal workers across the country are going unpaid, adding to the uncertainty surrounding the economic picture.

Institute for Supply Management's (ISM) Manufacturing Purchasing Managers' Index (PMI) dropped to 48.7 from 49.1 in September, showing a deeper-than-expected contraction and cooling price pressures. This reading came in weaker than the market expectation of 49.5. Factory Orders and JOLTS Job Openings data for September will be eyed later in the day.