Dollar Index Falters Near 97.00 as Washington Dysfunction Overshadows Economic Data

The US Dollar Index (DXY) traded on a heavy footing around 97.00 during Tuesday's Asian session, struggling to find traction despite the release of robust economic data. Currency markets appear to have decoupled from traditional economic indicators, focusing instead on political risk premiums associated with a potential US government shutdown.

Politics Trumps Economics

Typically, the latest Durable Goods Orders report would have been a boon for the greenback. US Durable Goods Orders for November surged by 5.3%, the largest increase in six months, rebounding sharply from a revised 2.1% decline in the prior month.

• Even stripping out the volatile transportation sector, core capital goods orders rose 0.7%, beating expectations and signaling resilient business investment.

However, FX traders are discounting this data in favor of immediate political risks:

• Shutdown Fears: Senate Democrats have threatened to block appropriation bills unless concessions are made regarding Homeland Security funding.
• Immigration Backlash: With President Trump's approval rating on immigration slipping to roughly 39%, markets are pricing in a potential weakening of the administration's political capital.

Fed Outlook: The Market Leads the Dance

Market participants are absorbing a growing narrative that the Federal Reserve may be “behind the curve.” Recent analyses suggest that hidden deflationary forces—driven by AI productivity gains—might force the Fed to cut rates more aggressively.

• Consensus expects the Fed to hold rates at 3.50%–3.75% this Wednesday.
• Dovish signaling from Chair Powell regarding labor market weakness could exacerbate the Greenback's slide.
• Immediate focus shifts to the upcoming Consumer Confidence index and ADP employment numbers for direction.