US Dollar Index Slips Toward 98.00 as Fed Independence Concerns Weigh

Market Overview

The US Dollar Index (DXY) drifted lower during European trading, hovering around the 98.40 level and edging closer to the key 98.00 mark. The greenback remains under pressure as investors reassess the outlook for US interest rates amid rising expectations for monetary easing and growing concerns over the Federal Reserve’s independence.

Market participants are positioning cautiously ahead of a fresh round of US economic data due later this month, which could reshape expectations around the pace and scale of future rate cuts.

Fed Independence in Focus

Sentiment toward the US dollar has been unsettled by renewed debate over the Federal Reserve’s autonomy under the administration of President Donald Trump. Investors increasingly believe that Trump may appoint a more dovish successor to current Fed Chair Jerome Powell when his term ends in May.

These concerns stem from repeated criticism last year regarding the speed and extent of interest rate cuts, raising questions about how much political influence could shape future monetary policy decisions. The uncertainty has weighed on the dollar by undermining confidence in a stable, predictable policy framework.

Rising Rate-Cut Expectations Add Pressure

Strategists at major investment banks have warned that questions surrounding central bank independence are likely to linger into 2026, skewing risks toward a more accommodative policy path. As a result, markets are pricing in a more aggressive easing cycle than the Federal Reserve itself currently signals.

Financial markets now expect two rate cuts this year, compared with just one cut projected by a divided Fed. According to current pricing, there is also a near 15% probability of a rate cut at the Fed’s January meeting, adding further downside pressure to the US dollar.

Labor Market Data Holds the Key

Attention now turns to the next major catalysts for the greenback: upcoming US labor market indicators, including the Nonfarm Payrolls and Unemployment Rate reports due next week. These releases will play a crucial role in determining whether the US economy is cooling enough to justify deeper rate cuts.

Stronger-than-expected employment data could help stabilize the dollar by pushing back against aggressive easing expectations. Conversely, signs of labor market softening would likely reinforce the bearish narrative and keep the DXY under pressure.

Technical and Market Outlook

From a technical standpoint, the DXY’s failure to reclaim the 98.80–99.00 zone keeps the near-term bias tilted to the downside. A sustained move below 98.00 could expose further losses, while any rebound is likely to face resistance unless supported by firm economic data or a shift in policy expectations.

Summary

The US Dollar Index is edging toward the 98.00 level as concerns over Federal Reserve independence and rising rate-cut expectations weigh on sentiment. Markets are increasingly pricing in a more dovish policy path than the Fed currently projects, while political uncertainty adds another layer of pressure. With key labor market data due next week, the dollar’s near-term direction will hinge on whether economic resilience can counter growing expectations for easier monetary policy.

FAQ

1. Why is the US Dollar Index falling?
The dollar is weakening due to rising expectations for interest rate cuts and concerns about the Federal Reserve’s independence.

2. What is worrying markets about Fed independence?
Investors expect President Trump may appoint a more dovish Fed chair, raising fears of increased political influence over monetary policy.

3. How many rate cuts are markets expecting?
Markets are currently pricing in two rate cuts this year, more than the single cut projected by the Federal Reserve.

4. What data could support the US dollar?
Stronger-than-expected Nonfarm Payrolls and unemployment data could stabilize the dollar and limit further declines.

5. Why is the 98.00 level important for DXY?
The 98.00 mark is a key psychological and technical support level that traders closely monitor for potential trend shifts.

Disclaimer: This article is for informational purposes only and does not constitute financial, investment, or trading advice. Market conditions can change rapidly, and readers should conduct their own research or consult a qualified financial professional before making any investment decisions.