The US dollar extended its decline midweek as investors recalibrated expectations for Federal Reserve policy, digesting a fresh wave of soft economic data that reinforced the likelihood of a December rate cut. With consumer demand showing signs of strain and market pricing shifting rapidly, the greenback’s trajectory is increasingly tied to evolving perceptions of economic resilience and monetary policy direction. Traders now face a critical inflection point: whether the Fed’s next move will arrest the dollar’s slide or accelerate a broader revaluation across global currency markets.

Markets Reprice the Outlook for US Monetary Policy

The dollar index remained below 100 on Wednesday, extending losses from the prior session as a weaker-than-expected set of economic indicators drove more aggressive rate-cut expectations. September retail sales rose less than forecast, while consumer confidence deteriorated notably in November—signals that the once-resilient US consumer is finally confronting the combined pressures of elevated prices, shrinking savings buffers, and higher borrowing costs.

Swap markets now assign roughly an 84% probability to a 25-basis-point rate cut at the Fed’s December 9–10 meeting, a sharp change from just a week ago when odds hovered near 50%. Investors have been forced to pivot quickly as the narrative shifts from inflation management to concerns over slowing demand.

The dollar’s decline also followed reports that Kevin Hassett—White House National Economic Council Director and a long-time advocate for lower rates—is the current frontrunner to become the next chair of the Federal Reserve. Markets interpreted the development as another potential dovish tilt for the world’s most influential central bank.

Currency Markets Adjust to Shifting Risk Dynamics

The dollar weakened broadly, with the steepest declines recorded against the New Zealand and Australian dollars, currencies that tend to outperform when global risk appetite improves. The pullback reflects both the shift in Fed expectations and the comparative resilience of commodity-linked economies benefiting from stabilizing regional growth trends.

The DXY index fell to 99.6719 as of November 26, marking a modest 0.12% daily decline yet extending a broader trend of weakness. While the US dollar has strengthened 0.9% over the past month, it remains 6% lower compared to a year earlier—an indicator of how dramatically market sentiment has evolved. Historically, the currency reached an all-time high of 164.72 in February 1985, showing the deep runway available for structural adjustments if the Fed embarks on an easing cycle.

For now, traders remain cautious. The absence of timely labor data due to the recent government shutdown has added uncertainty, increasing reliance on secondary indicators like retail activity and confidence readings. In this environment, each piece of incoming data carries heightened market impact.

A Market Preparing for Policy Shifts

Looking ahead, the dollar’s next decisive move will be shaped by the interplay between incoming US data and expectations for central bank leadership. If the weakening in consumer demand broadens or if policymakers signal greater concern about economic momentum, the case for a December rate cut—and further dollar softness—will strengthen. Conversely, any upside surprises in inflation or spending could reintroduce volatility and test the durability of the current bearish trend.

Either way, foreign exchange markets are entering a phase of elevated sensitivity, with monetary expectations now acting as the principal driver of price action.