US Dollar Index rises to near 99.50 as Fed rate cut bets decline

• US Dollar Index gains ground amid declining odds of a Fed rate cut in December.
• CME FedWatch Tool indicates pricing in a 46% chance of a 25-basis-point Fed rate cut in December.
• Traders await the September Nonfarm Payrolls report, which is scheduled for release on Thursday.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its gains for the second successive session and trading around 99.50 during the Asian hours on Monday.

The US yields on the 2- and 10-year Treasury notes have slipped to 3.60% and 4.14%, respectively, as investors temper expectations for an imminent Federal Reserve rate cut. The CME FedWatch Tool suggests that financial markets are now pricing in a 46% chance that the Fed will cut its benchmark overnight borrowing rate by 25 basis points (bps) at its December meeting, down from 67% probability that markets priced a week ago.

Kansas City Fed President Jeffery Schmid said on Friday that monetary policy should "lean against demand growth," adding that current Fed policy is "modestly restrictive," which he believes is appropriate. Moreover, St. Louis Fed President Alberto Musalem said Thursday that rates are now closer to neutral than restrictive and the US economy remains resilient. Musalem stressed the need for caution, noting there is limited room to ease without risking overly accommodative policy.

Traders are preparing for a wave of delayed United States (US) economic data after the government's reopening, looking for clearer signals on Federal Reserve (Fed) policy. The highly anticipated September Nonfarm Payrolls report is scheduled for release on November 20, with markets also awaiting a revised timeline for other key indicators. However, US National Economic Council Director Kevin Hassett cautioned that some October data may "never materialize," as several agencies were unable to gather information during the shutdown.