Dollar extends losses, weighed by the dovish Fed and trade tensions

The dollar index was under pressure on Friday as a combination of dovish Federal Reserve commentary, persistent US-China trade tensions, and the prolonged government shutdown pressured the greenback.

The 10-year Treasury yield slipped below 4% for the first time in several months, reflecting growing confidence that the Fed will deliver additional easing in the coming meetings.

Markets are now fully pricing in a quarter-point cut this month and another in December.

Fed Governor Christopher Waller said he supports another rate cut at the upcoming meeting, given mixed labour market data, while Governor Stephen Miran argued for a more aggressive pace of easing to safeguard growth. These arguments follow this week’s Beige Book data, which highlighted emerging economic strains. The shutdown, now in its third week, has further clouded visibility for policymakers by halting key economic releases.

Looking ahead, all eyes will turn to next Friday’s US inflation data, with headline CPI expected to ease to 0.3% and core inflation to hold steady. Weak numbers could amplify pressure on the dollar and reinforce the Fed’s dovish narrative, dragging both the dollar and yields down.