US Dollar Index posts modest losses to near 98.50, US-China trade tensions in focus

• US Dollar Index softens around 98.60 in Tuesday’s Asian session. 

• Fears that a prolonged US government shutdown will hurt economic activity weigh on the DXY. 

• Traders will closely monitor the US September CPI inflation data later on Friday. 

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 negative note near 98.60 during the Asian session on Tuesday. The DXY declines amid the ongoing US government shutdown. However, the downside for the DXY might be cap in the near term as trade tensions between the US and China calm somewhat. 

"As a result, the markets are pricing in that things will de-escalate," Rodda added. "However, the markets are likely to remain jittery until such backdowns are explicitly announced,” said Kyle Rodda, a markets analyst at capital.com.

The ongoing US federal government shutdown could undermine the US Dollar against its rivals. The government shutdown has entered its 21th days with no end in sight, after senators failed for the 11th time to resolve the impasse in votes on Monday. The shutdown is now the third-longest funding lapse in modern history.  

Federal Reserve (Fed) Governor Christopher Waller said that he is on board for another interest rate cut at the Fed's meeting later this month, citing the mixed readings on the state of the job market. Meanwhile, St. Louis Fed President Alberto Musalem said that he could support a path with another rate cut if more risks to jobs emerge and inflation is contained.  

Fed's newest Governor Stephen Miran last week reiterated support for more aggressive rate cuts at the October meetings than the one favored by some of his colleagues. Dovish remarks from Fed officials could drag the USD lower in the near term. 

The US September Consumer Price Index (CPI) inflation data will take center stage later on Friday due to the government shutdown-driven data drought. Both headline and core CPI are expected to show a rise of 3.1% YoY in September. Any signs of a hotter-than-expected US inflation could lift the US Dollar in the near term.