The US Dollar Index (DXY) inched up on Wednesday, hanging out near 98.50 as traders digested the latest word from the Fed. During Asian hours, the dollar kept climbing for a second day—people are jumping back in after Fed officials signalled they want to take things slow on further easing.
The minutes from December’s meeting showed some disagreement, but most Fed officials seem ready to hit pause on more rate cuts if inflation keeps cooling off. A few also pointed out that holding rates steady for a while could let the economy catch its breath, especially after three cuts this year aimed at keeping the job market from overheating.
Dollar Still Under Pressure Despite Recent Gains
Sure, the dollar’s had a little bounce, but the big picture hasn’t changed—2024’s been rough. The DXY is on track for its biggest yearly drop, nearly 9.5%, and it’s been a choppy ride. A lot of the trouble started with policy jitters after Donald Trump’s tariff moves earlier in the year.
There’s more holding the dollar back. Traders still expect two more Fed rate cuts in 2026, and that’s weighing on any real rally. With interest-rate gaps closing between the US and other big economies, the dollar just doesn’t stand out as much. Add in worries about bigger budget deficits and fresh debate over the Fed’s independence, and you’ve got a recipe for uncertainty.
Eyes on the Fed’s Next Moves
Now, everyone’s waiting to see where the Fed goes from here. There’s buzz around who’ll replace Jerome Powell as Fed chair, and any hints there could shake up long-term rate bets.
Right now, the CME Fed Watch Tool shows traders are pretty convinced rates will stay put at the next meeting—odds have ticked up to 85.1% from 83.4%. The chances of a 25-basis-point cut are only 14.9 percent at this point.
The Fed cut interest rates by 25 basis points in December, lowering the target range to 3.50% to 3.75%. In total, that’s 75 basis points in cuts for 2025 so far as policymakers try to strike a balance between a slowing job market and inflation that’s still above target.
