Rewritten Article: “U.S. Dollar Ends Week Lower Amid Federal Reserve Policy Outlook and Government Shutdown Concerns”
Original author: Gertrude Chavez-Dreyfuss, Reuters
Source: TradingView via Reuters (https://www.tradingview.com/news/reuters.com,2025:newsml_L6N3WJ10P:0-dollar-ends-week-lower-amid-fed-outlook-us-government-shutdown/)
The U.S. dollar concluded the recent trading week on a weaker note, pressured by expectations that the Federal Reserve has likely reached the end of its aggressive monetary tightening cycle, alongside growing worries about a possible U.S. government shutdown. These compounding factors drove investors to reassess their exposure to the greenback, with signs emerging that the dollar’s recent surge may taper off in the near term.
Key Takeaways
– The dollar posted its first weekly decline in nearly two months.
– Weak core inflation data bolstered investors’ speculation that the Federal Reserve may not hike rates further.
– Increasing political uncertainty in Washington added to downward pressure on the greenback.
– Some traders started repositioning into other major and emerging market currencies.
– Market participants are watching U.S. economic indicators closely for clues on what actions the Fed may take next.
Dollar Retreats from Multi-Month Highs
The dollar index, which measures the U.S. currency against a basket of six major peers, ended the week lower after reaching 10-month highs earlier in the month. Fridays’ final reading placed the index at 106.15, slipping approximately 0.5% for the week. This was the first time in nearly two months that the index recorded a weekly loss.
Several contributing factors played a role in this reversal:
– Investors doubt further interest rate hikes in the short term.
– The U.S. core personal consumption expenditures (PCE) price index, seen as the Fed’s preferred inflation gauge, came in softer than expected.
– Political unrest over the potential U.S. federal government shutdown fueled risk aversion and weakened the dollar’s relative appeal.
Federal Reserve Sentiment Shifts
The dollar’s appreciation over the past few months had been largely driven by the Federal Reserve’s aggressive rate hikes undertaken to combat persistent inflation. However, signs emerged this week suggesting that the central bank might adopt a more dovish posture moving forward.
Key developments:
– The September PCE price index rose 0.1% month-over-month and 3.9% year-over-year, matching expectations and representing a cooling trend from previous readings.
– Core PCE, which strips out food and energy prices, climbed 0.1% over the month and increased 3.7% from a year earlier, its slowest annual rise since mid-2021.
– Following this data, market pricing indicated a lower probability of another rate increase by year-end.
Fed officials have offered mixed signals, but several analysts now believe the central bank might pause further increases in November and potentially hold rates steady through early next year. Investors are now focused on how long the Fed will maintain rates at currently elevated levels rather than on additional hikes.
Political Risks Pressuring the Dollar
Another challenge the greenback faced this week was the looming risk of a partial U.S. government shutdown. With lawmakers facing a deadline to reach a budget agreement, uncertainty surrounding federal spending added another layer of pressure to the dollar.
Market concerns deepened as the weekend approached, with commentary from House and Senate representatives suggesting wide divides on key policy issues. Investors grew increasingly nervous, and some began adjusting their positions away from U.S. assets.
Continued congressional gridlock could result in:
– Disruptions to government services and federal workers’ pay.
– Delays in key economic data releases, complicating the Fed’s decision-making.
– A potential downgrade of U.S. sovereign debt or increased borrowing costs.
These risks have introduced volatility to forex markets, prompting traders to evaluate alternative safe-haven assets like the Swiss franc
Read more on EUR/USD trading.