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The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, trades on a negative note near 99.45 during the early European trading hours on Thursday. The DXY extends its downside on the growing expectations that the US Federal Reserve (Fed) will deliver a rate cut in the December policy meeting.

The US Dollar retreats from a six-month high reached a week ago to head for its largest weekly drop since July as traders increase their bets of a Fed rate reduction amid the uncertainty and dovish comments from Fed officials. Financial markets are now pricing in nearly an 83% chance of a Fed rate cut next month, up from 50% a week earlier, according to the CME FedWatch tool. 

Earlier this week, Fed Governor Christopher Waller said that available data indicate that the labor market remains weak enough to warrant another quarter-point cut at the December meeting. Meanwhile, San Francisco Fed President Mary Daly noted that she supports lowering the interest rate next month because she saw a sudden deterioration in the job market, as both are more likely and harder to manage than an inflation flare-up. 

On the other hand, stronger-than-expected US economic reports released on Wednesday could help limit the USD’s losses. New orders for manufactured Durable Goods Orders in the US rose 0.5% in September, the US Census Bureau revealed on Wednesday. This reading followed the 3% increase (revised from 2.9%) seen in August and came in better than the market expectation for an increase of 0.3%.

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