US Dollar Index falls to near 99.00 amid Fed probe, rate cut doubts

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is halting its four-day winning streak and trading around 99.00 during the Asian hours on Monday.

Market caution has grown around the Federal Reserve after federal prosecutors opened a criminal investigation into Fed Chair Jerome Powell over the central bank’s Washington headquarters renovation and whether he misled Congress about the project’s scope, the New York Times reported Sunday.

The Greenback faces challenges as traders assess the likelihood of further US Federal Rate cuts after the recent jobs report showed job growth fell short of expectations in December. US Nonfarm Payrolls (NFP) rose by 50,000 in December, falling short of November's 56,000 (revised from 64,000) and came in weaker than the market expectation of 60,000. However, the Unemployment Rate ticked lower to 4.4% in December from 4.6% in November.

Richmond Fed President Tom Barkin said the decline in the unemployment rate was welcome and described job growth as modest but stable. Barkin added that it is difficult to find firms outside healthcare or AI that are hiring and said it remains unclear whether the labor market will tilt toward more hiring or more firing.

Traders continue to price in two Fed rate cuts this year, though the central bank is widely expected to keep policy unchanged later this month. According to the CME Group's FedWatch tool, Fed funds futures continue to price in about a 95% probability that the US central bank will keep rates unchanged at its January 27–28 meeting.

However, the US Dollar may further gain ground amid increased geopolitical tensions. US President Donald Trump warned Tehran against using force on demonstrators and signaled possible action if the crackdown intensifies, while Iranian officials cautioned against any US or Israeli intervention. Meanwhile, European countries led by the UK and Germany are considering increasing their military presence in Greenland to bolster Arctic security.