Fed's Ambiguity Causes Dollar to Weaken and Triggers Divergent Responses in Gulf Markets

The U.S. Dollar has lost ground as confidence in a December Federal Reserve rate cut fades, creating volatility in Gulf markets and the wider global financial landscape. Recent signals from the Fed, combined with weak oil prices, have heightened uncertainty. Market participants now estimate a 65% probability of a rate cut in December—down significantly from over 90% before Chair Jerome Powell's comments last week, according to a

. This change has impacted various asset classes, with Gulf stock markets showing mixed results as investors adjust to shifting policy expectations, as reported by .

Saudi Arabia’s TASI index slipped 0.7%, weighed down by losses in major banks and energy firms such as Al Rajhi Bank and ACWA Power, even as Saudi Aramco advanced 0.7%. Abu Dhabi’s FADGI index rose 0.3%, supported by a recovery in Aldar Properties, while Dubai’s DFMGI dipped 0.1% after Emirates NBD fell 2.7%, according to regional reports. These varied responses highlight the combined effects of dollar-pegged currencies and local sector trends.

At the same time, OPEC+ has chosen to halt output increases until early 2026, intensifying the decline in oil prices and adding to concerns about oversupply, as previous coverage noted.

Uncertainty around the Fed’s policy direction has also drawn criticism from U.S. officials. Treasury Secretary Scott Bessent described the housing sector as being in a “recession,” attributing the downturn to elevated mortgage rates linked to Fed actions, which he said are hitting low-income families hardest, according to a

. He urged for significant rate reductions to boost demand, warning that continued restrictive policy could trigger a wider economic slump. His remarks echo calls from some Fed members, including Chicago Fed President Austan Goolsbee, who observed “mild cooling” in the job market but advised caution, as reported by Reuters. The Fed’s recent move to end its Quantitative Tightening (QT) program and redirect proceeds into Treasury bills has added to the uncertainty, suggesting a shift toward stabilizing liquidity but offering limited direct help to housing, as highlighted in .

Global financial markets have intensified the Dollar’s swings. The currency reached a four-month peak against the euro as risk aversion grew, while the yen made modest gains amid Bank of Japan inaction and speculation about possible intervention. The U.S. Dollar Index, which tracks the currency against six major peers, surpassed 100 for the first time since August, underscoring the Dollar’s appeal as a safe haven during geopolitical and economic uncertainty, as earlier reports indicated. In Asia, capital is increasingly moving toward Europe and Asia as investors diversify away from U.S. assets, with European markets seeing net equity inflows and relatively steadier growth prospects, the MarketMinute report also noted.

The Dollar’s future path remains closely linked to Fed communications and economic indicators. A prolonged government shutdown has postponed key jobs and inflation data, leaving the Fed to rely on mixed signals from private sources. With Powell maintaining that a rate cut is “not a foregone conclusion,” traders are preparing for a December meeting that could either confirm a policy shift or reinforce caution. For now, Gulf markets and global investors are maneuvering through a delicate balance, where every adjustment in U.S. policy sends ripples through energy, currency, and commodity markets.