The US dollar showed resilience in October despite Federal Reserve rate cuts
and a prolonged government shutdown disrupting official data. Private reports
this week, including the ADP employment report, are expected to influence the
dollar's trajectory amid cautious Fed policy and persistent inflation concerns.
Dollar Gains Despite Rate Cuts and Shutdown
The US dollar gained 2% in October, marking its first
monthly rise since July, despite back-to-back rate cuts by the Federal Reserve
in September and October. Market expectations of a dollar weakening due to
these cuts did not fully materialise, as the US Dollar Index (DXY) remained
range-bound and supported by underlying domestic factors.
According to Convera's Market Insights team, this resilience
stems from a combination of steady US economic growth—with the Atlanta Fed’s
nowcast modelling a healthy 3.9% GDP growth in Q3—persistent fiscal deficits
providing structural support, and a cautious Federal Reserve. The market has
largely priced in anticipated easing, making the dollar’s path increasingly
dependent on actual economic data rather than speculative bets on policy
shifts.
Monetary Policy Holds Uncertainty Amid Labour Market Concerns
Federal Reserve monetary policy has entered a holding
pattern due to a lack of official labour market data. The ongoing government
shutdown, approaching a historic 35 days, has impeded the release of key
economic figures such as the September Non-Farm Payroll data. This has made
Federal Open Market Committee (FOMC) officials hesitant to commit firmly to
further rate cuts.
Kansas City Fed President Jeff Schmid, who voted to maintain steady rates, pointed out on Friday:
“By my assessment, the labour market is largely in balance, the economy shows continued momentum, and inflation remains too high.”
This statement underscores the Fed’s caution, balancing inflation
concerns against signs of labour market softening.
Private Data Reports to Influence Dollar This Week
With government shutdown-induced gaps in official data,
market participants are turning their attention to alternative data sources.
The ADP employment report, scheduled for release Wednesday, will be a key
indicator of labour market health. Other private sector indices such as Purchasing
Managers' Index (PMI) and the Institute for Supply Management (ISM) reports
will also be watched, although their market impact is expected to be limited
compared to employment figures.
The dollar’s resilience may continue into November if these
private metrics show labour market strength, potentially reinforcing the USD
amid speculation on the Fed’s next move. However, without a strong fundamental
catalyst such as resolution of the government shutdown or conclusive payroll
data, any breakout from the recent sideways trading band could be delayed.
Economic Headwinds and Market Sentiment
Despite the dollar's strength, broader economic challenges
remain. The government shutdown has furloughed roughly 700,000 federal
employees and left another 700,000 working without pay, diminishing consumer
spending and subtracting from GDP growth at an estimated 0.1% per week of
shutdown continuation. According to a report on Investing.com by a market
analyst, every week of the shutdown shaves GDP and introduces uncertainties
that could affect the dollar and broader markets.
Fed Chair Jerome Powell has signalled a cautious approach to
further rate cuts, reducing market expectations for easing in December from
above 90% down to around 70%. Inflation has risen for five consecutive months,
reinforcing the Fed’s reluctance to loosen policy prematurely despite ongoing
economic headwinds.
Other Currency Moves and Financial Indicators
In related movements, the British pound is on shaky ground
leading into the Bank of England’s meeting, with markets pricing in minimal
easing and GBP/USD approaching technical support levels unseen since April.
Meanwhile, the Canadian dollar faces pressure after GDP figures showed a
decline in August, raising concerns about Canada’s economic momentum as the
Bank of Canada pivots towards structural reforms.
Gold prices remain steady but subdued, pressured by a strong dollar and moderated rate cut expectations, while easing US-China trade tensions also temper bullion demand, according to Reuters coverage.
Technically, the DXY chart suggests a test of the upper band of the five-month range, with resistance near the 100 level. However, a sustained breakout may require a decisive fundamental driver such as government shutdown resolution or fresh labour market data.
According to detailed analysis by Convera, the interplay of fiscal uncertainty due to the ongoing shutdown and monetary policy expectations will be critical in determining the dollar’s path over the near term. Until clarity emerges, market participants will rely heavily on private reports and cautiously calibrated Fed comments as primary guides.