The US Dollar Index (DXY) has rebounded to the key 100.00 level, driven by Fed Chair Jerome Powell’s hawkish tone and rising safe-haven demand amid the ongoing US government shutdown, notes DBS Senior FX Strategist Philip Wee.

However, Wee argues that the rally “looks more like a short squeeze than the start of a new uptrend.” Once the shutdown ends and economic data resumes, markets may refocus on weakening labor conditions and corporate layoffs, particularly in tech firms shifting toward AI.

Wee adds that Treasury Secretary Scott Bessent’s recession warnings could pressure the Fed to ease policy, while political dynamics under President Trump’s administration may influence the USD’s strength. The upcoming Supreme Court ruling on Trump’s IEEPA powers could also reshape trade policy and USD sentiment heading into 2025.