US Dollar Index softens below 99.50 as US government shutdown deepens

• US Dollar Index weakens to around 99.30 in Friday’s early European session. 

• The deadlock over ending the US government shutdown deepened on Friday. 

• Fed officials saw another two interest rate cuts by the end of 2025, FOMC minutes showed. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, trades on a softer note near 99.30 during the early European session on Friday. Traders brace for comments from Federal Reserve (Fed) policymakers later on Friday. Also, the preliminary reading of the U-Mich Consumer Sentiment report will be published. 

The US government shutdown entered its tenth day on Friday as the Senate rejected funding bills from lawmakers that had the potential to bring the shutdown to an end. Concerns over the impact on the US economy could undermine the US Dollar against its rivals in the near term. 

Minutes from the Fed's September meeting released on Wednesday showed that a majority of policymakers supported the September rate cut and signaled further reduction later this year. However, some members favored a more cautious approach, citing concerns about inflation.

Markets are now pricing in nearly a 95% odds that the Fed cuts rates by 25 bps at its October meeting, while the odds of an additional reduction in December have dropped to 80%, from 90%, in the past week, according to the CME FedWatch Tool.

New York Fed President John Williams said on Thursday that he would be comfortable with cutting interest rates again. Meanwhile,  Fed Governor Michael Barr said that the current outlook poses challenges for judging the stance of monetary policy and deciding the right path forward. Barr also noted that the Fed's rate cut in September was appropriate. 

Traders will take more cues from the speeches from the Fed’s  Austan Goolsbee and Alberto Musalem later on Friday. Any hawkish remarks from Fed officials could lift the DXY in the near term.