US Dollar Drops Against Pound and Euro as Markets Eye Fed Rate Cuts

The US dollar weakened against major currencies as markets priced in two Federal Reserve rate cuts over the next three months, amid the ongoing government shutdown and related uncertainties affecting federal workers’ pay.

The dollar’s decline was also influenced by rising tensions in US-China relations. On Friday, USD/JPY fell 0.6% to 149.48, the British pound gained 0.53% to $1.3427, and the euro rose 0.29% to $1.1655.

Following recent US tariff announcements, the dollar has shifted from a traditional safe-haven currency to a more ‘risk-on’ asset, though trading ranges remain fragile. Concerns over regional bank loans and stress in money market rates have reinforced risk-off sentiment, further weighing on the greenback.

The government shutdown continues to delay key economic reports, including the September Consumer Price Index (CPI), postponed due to disruptions at the Bureau of Labor Statistics. To meet statutory deadlines for Social Security’s annual cost-of-living adjustment, select Department of Labor staff have been recalled to process the data, with the report now expected on 24 October.

With around two million federal employees facing missed paychecks, political parties show little sign of compromise, keeping market uncertainty high.

The Dollar Index, which had climbed following the 17 September FOMC meeting, fell from 99.55 to a low near 98.00. It briefly recovered to test the 20-day moving average at 98.30, as markets anticipate potential Fed rate cuts later this month and in December.

Experts note that the dollar’s reversion to traditional safe-haven behaviour suggests that recent ‘risk-on’ gains may have been temporary, reflecting broader trends in dedollarisation.