US Dollar Index hovers around 98.00 ahead of FOMC Meeting Minutes
- US Dollar Index moves little as traders adopt caution ahead of the FOMC December Meeting Minutes.
- The Greenback may struggle due to the odds of two more Fed rate cuts in 2026.
- Risk sentiment increases amid the uncertain Ukraine–Russia situation and Middle East tensions.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is remaining steady and trading around 98.00 during the Asian hours on Tuesday. Traders are likely to focus on the Federal Open Market Committee (FOMC) December Meeting Minutes due later in the day, for insight into the Fed’s 2026 outlook.
The Greenback could face challenges amid ongoing expectations of two more rate cuts by the Federal Reserve (Fed) in 2026. The CME FedWatch tool shows an 83.9% probability of rates being held at the Fed’s January meeting, up from 80.1% a week earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 16.1% from 19.9% a week ago.
The US central bank lowered interest rates by 25 basis points (bps) at the December meeting, bringing the target range to 3.50%–3.75%. The Fed delivered a cumulative 75 bps of rate cuts in 2025 amid a cooling labor market and still-elevated inflation.
Risk sentiment sours amid persistent geopolitical risks. Uncertainty also returned over efforts to end the war in Ukraine, with Russia’s foreign minister saying Moscow’s negotiating stance would shift following alleged strikes on President Putin’s residence.
In the Middle East, Saudi air strikes in Yemen and Iran’s declaration of a “full-scale war” with the United States (US), Europe, and Israel have raised fears of broader instability, with Trump warning of further strikes if Iran resumes rebuilding its nuclear programme.
US Dollar FAQs
The US Dollar (USD) is the official currency of the United States of America, and the ‘de facto’ currency of a significant number of other countries where it is found in circulation alongside local notes. It is the most heavily traded currency in the world, accounting for over 88% of all global foreign exchange turnover, or an average of $6.6 trillion in transactions per day, according to data from 2022. Following the second world war, the USD took over from the British Pound as the world’s reserve currency. For most of its history, the US Dollar was backed by Gold, until the Bretton Woods Agreement in 1971 when the Gold Standard went away.
The most important single factor impacting on the value of the US Dollar is monetary policy, which is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability (control inflation) and foster full employment. Its primary tool to achieve these two goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, the Fed will raise rates, which helps the USD value. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates, which weighs on the Greenback.
In extreme situations, the Federal Reserve can also print more Dollars and enact quantitative easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used when credit has dried up because banks will not lend to each other (out of the fear of counterparty default). It is a last resort when simply lowering interest rates is unlikely to achieve the necessary result. It was the Fed’s weapon of choice to combat the credit crunch that occurred during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy US government bonds predominantly from financial institutions. QE usually leads to a weaker US Dollar.
Quantitative tightening (QT) is the reverse process whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing in new purchases. It is usually positive for the US Dollar.
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