US Dollar Index rises to near 98.50 as FOMC Minutes hint at pausing rate cuts
- US Dollar Index rose after the December FOMC Minutes signaled support for pausing further rate cuts.
- The DXY is on track for its largest annual decline, at nearly 9.5%.
- CME FedWatch shows an 85.1% chance of rates staying unchanged in January, up from 83.4% earlier.
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is extending its gains for the second successive session and trading around 98.30 during the Asian hours on Wednesday.
Federal Open Market Committee (FOMC) December Meeting Minutes, released on Tuesday, revealed a deeply divided committee, with most participants judging that it would likely be appropriate to stand on further rate cuts if inflation declined over time. Meanwhile, some Fed officials said it might be best to leave rates unchanged for a while after the committee made three rate reductions this year to support the weakening labor market.
The DXY is on track for its largest annual decline of nearly a 9.5%, reflecting a turbulent period that began with US President Donald Trump’s chaotic rollout of tariffs. The US Dollar remains under pressure amid expectations of two additional Federal Reserve rate cuts in 2026, which would narrow interest-rate differentials with other major peers.
Moreover, concerns over fiscal deficits and the Fed’s independence put downward pressure on the Greenback. Traders are also closely watching the appointment of a new Fed Chair, with Trump expected to name Jerome Powell’s successor early next year.
The CME FedWatch tool shows an 85.1% probability of rates being held at the Fed’s January meeting, up from 83.4% a day earlier. Meanwhile, the likelihood of a 25-basis-point rate cut has fallen to 14.9% from 16.6% a day ago.
The Fed 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.
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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