US Dollar Index declines to near 97.00 amid Fed uncertainty, US shutdown fears

• US Dollar Index remains under selling pressure around 97.00 in Tuesday’s Asian session. 
• Trump will soon nominate a new US central bank chief, raising concerns about the Fed’s independence. 
• Financial markets expect the Fed to hold interest rates steady at its January meeting on Wednesday.

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 weaker note near 97.00 during the Asian trading hours on Tuesday. The US ADP Employment Change and Consumer Confidence reports are due later on Tuesday. 

Worries about the Federal Reserve (Fed) independence have dragged the DXY down to its lowest since September 18, 2025. US President Donald Trump said last week that he would soon announce his pick for the next Fed chair to replace Chair Jerome when his term expires in May. Betting markets pegged BlackRock Executive Rick Rieder as the front-runner, according to Reuters. 

"It's not possible to view the actions of the next Fed chair as separate from the economic environment or their ability to influence other FOMC (Federal Open Market Committee) participants," said Tim Duy, chief U.S. economist with SGH Macro Advisors.

Furthermore, a looming US government shutdown might contribute to the USD’s downside. The US government is heading for a partial shutdown as the top Democrat in the US Senate, Chuck Schumer, vows to oppose a funding package that includes appropriations for the Department of Homeland Security. Congress faces a January 30 deadline to fund the government or risk a partial government shutdown. 

The US Fed is widely expected to hold interest rates steady at its policy meeting on Wednesday, following three consecutive cuts at the end of 2025. Traders will closely watch the press conference as it might offer some hints about the US economic outlook and interest rate path. Any hawkish comments from Fed officials might help limit the USD’s losses in the near term.