US Dollar Index recovers above 97.50 ahead of US ISM Manufacturing PMI release

• US Dollar Index strengthens to around 97.80 in Tuesday’s early Asian session.

• Persistent geopolitical tensions boost the safe-haven flows, supporting the US Dollar. 

• Rising Fed rate cut bets might cap the DXY’s upside. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, recovers some lost ground to near 97.80 during the early Asian trading hours on Tuesday. The US ISM  Manufacturing Purchasing Managers Index (PMI) for August will be in the spotlight later on Tuesday. 

The DXY rebounds from the lowest level since 28 July amid ongoing geopolitical tensions between Russia and Ukraine. The Guardian reported that Russian drone attacks on power facilities in northern and southern Ukraine on Sunday left nearly 60,000 customers without electricity. Ukrainian President Volodymyr Zelenskyy vowed to retaliate by ordering more strikes deep inside Russia.  

Nonetheless, the growing speculation that the US Federal Reserve (Fed) will resume lowering its benchmark interest rate this month might cap the upside for the US Dollar. According to the CME FedWatch tool, markets are now pricing in nearly an 89% possibility of a 25 basis points (bps) rate cut by the Fed at the September policy meeting, up from 85% odds before the US PCE data. 

Traders await the release of the US August employment report for fresh impetus. This report could offer insight into the economy's health and offer hints as to whether interest rate cuts are coming soon. The US economy is forecast to see 75K job additions in August, while the Unemployment Rate is projected to tick higher to 4.3% during the same report period.