Rate cut expectations heat up + bank risks reignite, US dollar index feared to post largest weekly drop since July.

Due to dovish signals released by Federal Reserve officials and new concerns in the market about the risks facing U.S. regional banks, the U.S. dollar index has been falling for the fourth consecutive trading day. If it maintains its current position at the close on Friday, this week will be the worst performing week in over two months (since July). According to the U.S. dollar spot index, the decline has widened to 0.5% so far this week, marking the largest weekly drop since July, while the two-year U.S. Treasury yield has fallen to a three-year low. Traders have significantly increased their bets on the Federal Reserve's dovish policy, with the current market expecting a total of 53 basis points of interest rate cuts before the end of the year, further strengthening from the previous expectation of 46 basis points on Wednesday. Federal Reserve Board member Christopher Waller pointed out on Thursday that the Fed can continue to steadily lower interest rates by 25 basis points to support the labor market under pressure currently. Another board member, Stephen Milan, reiterated the rationale for cutting interest rates by 50 basis points this month. Despite the ongoing government shutdown in its third week with no clear resolution timeline, coupled with scarce economic data releases, the dovish statements from Federal Reserve officials continue to drive investors to further increase their dovish bets. Morgan Stanley economist Michael Gapen's team emphasized in a report that the lack of economic data has not hindered Federal Reserve decision-making, and they expect another 25 basis point interest rate cut at the October meeting. Another factor driving the weakening of the U.S. dollar is the sharp decline in regional bank stock prices - impacted by concerns about tightening lending standards, leading to a steep drop in related stock prices, while easing political risks in Japan and France have also weakened the U.S. dollar's safe-haven appeal. Analysts Chris Turner and Francesco Pesole from ING believe that multiple negative factors are impacting the U.S. dollar: repricing of the Federal Reserve's dovish policy, progress in the Ukraine ceasefire, falling oil prices, and ongoing U.S.-China trade tensions, all contributing to the difficulty of finding a bottom for the dollar amidst the selling frenzy. According to anonymous traders, hedge funds that were betting on the appreciation of the U.S. dollar against the Japanese yen and the euro earlier this month have triggered stop-losses, while institutional investors are generally adopting a wait-and-see approach. In the options market, although long positions still lean towards a stronger U.S. dollar in the long term, the short-term sentiment has turned pessimistic. The U.S. dollar has already retraced about one-third of the rebound from its three-year low last month. European traders point out that market confidence remains fragile, with investors mainly adopting short-term trading strategies, and major currency pairs are gradually returning to recent average levels.