The US Dollar Index (USD Index) rose for the second consecutive session at the start of trading this week on Monday, November 17th, as market expectations for a Federal Reserve interest rate cut at its meeting on December 10th have decreased. According to the CME FedWatch tool, market expectations for a 25-basis-point rate cut in December have fallen to 44%, compared to 56% for a rate hold. This is a significant drop from over 70% last week.

Statements by several Federal Reserve members last week played a major role in changing these expectations, along with increased uncertainty in the US economy, rising concerns about a resurgence in inflation, and worries about the weakness of the US labor market, particularly after the government shutdown that lasted over 40 days before a bill to end the shutdown was passed last week. A rift emerged among members of the US Federal Reserve at its last meeting, with two members opposing a 25-basis-point interest rate cut in October, one member advocating for a 25-basis-point reduction, and another preferring to maintain the current rate. This marks the first time the Fed has witnessed such a division among its members since 2019, complicating the Fed’s task in the coming period and posing a challenge to Federal Reserve Chairman Jerome Powell.

Markets are awaiting the US labor market data and the unemployment rate for October, which were postponed due to the government shutdown. These figures will be closely watched by investors to assess the impact of the shutdown on the Fed’s future projections.