Dollar Hits 3-Month High as Fed Cut Hopes Fade; Pound Slides on UK Budget Worries

The U.S. dollar strengthened to a three-month high on Tuesday as traders scaled back expectations for further Federal Reserve rate cuts, while the British pound fell sharply amid concerns over the UK’s tough economic outlook.

According to CME FedWatch, traders now see only a 65% chance of another Fed rate cut in December, down from 94% just a week ago. The shift followed mixed signals from Fed officials and a lack of fresh economic data caused by the ongoing government shutdown, leaving policymakers and investors uncertain about the true state of the economy.

The dollar index (DXY) climbed above 100 for the first time since August, last seen near 99.82, supported by safe-haven demand as global stocks weakened and bond yields slipped.

Meanwhile, the British pound (GBP) dropped 0.61% to $1.3057 after UK Finance Minister Rachel Reeves warned of “hard choices” ahead in her upcoming budget, citing high debt, low productivity, and persistent inflation. Analysts said sterling is repricing lower as investors brace for slower UK growth.

The euro (EUR) edged down 0.2% to $1.149, hovering near a three-month low, while the Australian dollar (AUD) fell 0.7% to $0.6495 after the Reserve Bank of Australia held rates steady at 3.60% but signaled caution over further easing.

With the U.S. government shutdown still ongoing and mixed policy signals from central banks, risk sentiment remains fragile — keeping traders focused on the dollar’s dominance for now.