US Dollar Index rebounds toward 98.00 ahead of Producer Price Index data

• US Dollar Index recovers its daily losses ahead of the US Producer Price Index data on Thursday.
• US Treasury Secretary Scott Bessent believes that the Fed could implement a 50-basis-point rate cut at the next meeting.
• CME's FedWatch tool indicates pricing in a nearly 96% chance of a 25 basis point interest rate cut in September.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six major currencies, is trading around 97.80 during the early European hours on Thursday after recovering daily losses. Traders will likely observe the US Producer Price Index (PPI) data, followed by the weekly Initial Jobless Claims due later in the North American session.

Weaker US yields signal potential capital outflows from US markets, weakening the US Dollar, as investors price in rising odds of further rate cuts by the Federal Reserve. The 2- and 10-year yields on US Treasury bonds are trading at 3.66% and 4.21%, respectively, at the time of writing.

US Treasury Secretary Scott Bessent said in an interview on Wednesday that short-term Fed interest rates should be 1.5-1.75% lower than the current benchmark rate at an effective 4.33%. Bessent added that there is a good chance that the central bank could opt for a 50 basis point rate cut in September.

Additionally, US President Donald Trump shared his "paper calculation" that Fed interest rates should be at or near 1%. Trump also noted interest rates should be three or four points lower. Interest rates are just a paper calculation, he added.

US Consumer Price Index (CPI) rose 0.2% month-over-month in July, easing from the previous 0.3% increase, indicating that US tariffs are not fueling price pressures, along with a cooling labor market, reinforced a dovish sentiment surrounding Fed policy outlook. CME's FedWatch tool indicates that Fed funds futures traders are now pricing in nearly a 96% chance of a 25 basis point (bps) interest rate cut at the September meeting.