US Dollar Index rises to near 101.00 following Fed Powell remarks to lower rates gradually

• The US Dollar Index advances as the Fed’s Powell said that the central bank will lower interest rates ‘over time.’
• CME FedWatch Tool suggests a 61.8% probability to a 25 basis point rate cut by the Fed in November.
• US ISM Manufacturing PMI is expected to improve to 47.5 in September, from the previous 47.2 reading.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against other six major currencies, extends its gains for the second successive day. The DXY trades around 100.80 during the Asian hours on Tuesday. The US Dollar (USD) gains ground following the latest speech from the Federal Reserve (Fed) Chairman Jerome Powell.

Fed Chair Powell stated the central bank is not in a hurry and will lower its benchmark rate ‘over time.’ Powell added that the recent 50 basis point interest rate cut should not be seen as an indication of similarly aggressive future actions, noting that upcoming rate changes are likely to be more modest.

The CME FedWatch Tool indicates that markets are assigning a 61.8% probability to a 25 basis point rate cut by the Federal Reserve in November, while the likelihood of a 50-basis-point is 38.2%, down from 53.3% a day ago.

However, last week’s US Core Personal Consumption Expenditures (PCE) Price Index increased by 0.1% MoM in August, falling short of the expected 0.2% rise, aligning with the Federal Reserve's outlook that inflation is easing in the US economy. This reinforced the possibility of an aggressive rate-cutting cycle by the Fed.

Traders would likely observe US manufacturing data including ISM Manufacturing PMI later in the North American session, which is expected to improve to 47.5 in September, from the previous 47.2 reading. This report may provide a reliable outlook on the state of the US manufacturing sector.