US Dollar Index attempts a modest recovery from YTD low, upside potential seems limited

• DXY moves away from the YTD low set on Wednesday, albeit lacks bullish conviction.
• A modest uptick in the US Treasury bond yields offers some support to the Greenback.
• Rising odds for a larger Fed rate cut in September should cap any meaningful upside. 

The US Dollar (USD) edges higher during the Asian session on Thursday and for now, seems to have snapped a four-day losing streak to a fresh YTD low touched the previous day. The uptick, however, lacks bullish conviction, with the USD Index (DXY), which tracks the Greenback against a basket of currencies, trading with gains of less than 0.10% for the day, around the 101.25 region. 

A modest rebound in the US Treasury bond yields is seen as a key factor lending some support to the buck, though any further appreciating move seems elusive amid dovish Federal Reserve (Fed) expectations. The preliminary annual benchmark review of employment data published by the US Bureau of Labor Statistics showed that US employers added 818,000 fewer jobs than were reported during the year through March. This suggests that the US labor market is not as strong as estimated and supports prospects for a more aggressive policy easing by the Fed.

Furthermore, the minutes of the July 30-31 FOMC meeting revealed that a vast majority of officials backed the case for a rate cut in September, while some policymakers were leaning toward immediate action. Investors were quick to react and are now pricing in a 38% probability of a 50-basis points (bps) rate cut in September, up from 29% a day before. Moreover, the markets expect the Fed to announce about 100 bps worth of easing by the end of this year, which, in turn, should cap the US bond yields and hold back the USD bulls from placing aggressive bets. 

Moving ahead, traders now look to Thursday's US economic docket – featuring the release of the usual Weekly Initial Jobless Claims and Existing Home Sales data – for some impetus later during the early North American session. The focus, however, will remain glued to Fed Chair Jerome Powell's speech at the Jackson Hole Symposium on Friday. Investors will scrutinize Powell's remarks to see if the significantly weaker labor market report makes a strong case for a larger interest rate cut in September, which, in turn, will influence the near-term USD price dynamics.