The US Dollar Index remains steady at approximately 98.00 during the early European session on Monday. Anticipations surrounding US rate reductions in 2026, along with the imminent announcement of a new Fed Chair, may exert pressure on the US Dollar. Trump indicated that discussions regarding Ukraine are nearing completion, yet acknowledges that significant territorial matters persist. The US Dollar Index, which reflects the value of the US Dollar against a selection of six global currencies, is currently trading flat around the 98.00 mark during the early hours of European trading on Monday. The financial markets are anticipated to experience low trading volumes as participants get ready for the New Year holiday. The Pending Home Sales report for November in the United States is scheduled for release later on Monday.
The US Federal Reserve reduced the federal funds rate by 25 basis points during its December policy meeting, adjusting the target range to 3.50%-3.75%. The Federal Reserve has implemented a total of 75 basis points in rate reductions throughout 2025. Market expectations indicate that the US central bank may implement a minimum of two interest rate reductions in 2026, driven by a softening labor market and declining inflation, potentially putting downward pressure on the US Dollar relative to its competitors. The financial markets are currently reflecting a probability of approximately 18.3% that the Federal Reserve will lower interest rates during its upcoming policy meeting in January, as indicated.
Last week, US President Donald Trump expressed his desire for the next Federal Reserve chair to reduce interest rates, contingent on favorable market conditions. His remarks are expected to amplify apprehensions among investors and policymakers regarding the autonomy of the Federal Reserve. This, in turn, could lead to a decline in the DXY.
Conversely, geopolitical risks and uncertainties may enhance safe-haven flows, thereby bolstering the US Dollar. On Sunday, Trump indicated that he has achieved “a lot of progress” in discussions with Ukrainian President Volodymyr Zelenskiy regarding a potential peace agreement. However, he noted that finalizing the deal may require a few weeks and emphasized that there is no established timeline.