US Dollar Index softens below 97.50 as traders ramp up Fed rate cut bets 

• US Dollar Index declines to around 97.40 in Tuesday's early Asian session.
• The US NFP report showed US job growth plunged in August, supporting the case for a Fed rate cut. 
• The US August Producer Price Index (PPI) report will take center stage later on Wednesday. 

The US Dollar Index (DXY), an index of the value of the US Dollar (USD) measured against a basket of six world currencies, extends its downside to around 97.40 during the Asian session on Tuesday. The expectations of jumbo rate cuts by the US Federal Reserve (Fed) undermine the DXY. Traders will take more cues from the US August Producer Price Index (PPI) report, which is due later on Wednesday. 

The US Dollar edges lower in the wake of Friday's weak US jobs report. The recent US Nonfarm Payrolls (NFP) data revealed a slowing in hiring in August, while the unemployment rate increased to its highest level since 2021, suggesting that labor market conditions in the world's largest economy are deteriorating. These reports raise expectations for Fed rate cuts. 

According to the LSEG estimates, Fed funds futures are currently pricing in nearly a 90% possibility of a 25 basis points (bps) cut this month and a 10% odds of a 50 bps rate cut. 

The US PPI report will be in the spotlight later on Wednesday, which is expected to show an increase of 3.3% YoY in August. Meanwhile, the core PPI is projected to show a rise of 3.5% during the same period. This report could offer some hints about the US interest rate outlook. In case of a surprise uptick in inflation, this could lift the DXY in the near term. 

"We feel there's a chance for a surprise uptick in the dollar especially if the inflationary figures to arrive in the form of PPI (producer price index) and CPI (consumer price index) paint a picture in which prices are just simply getting out of control," said Juan Perez, director of trading at Monex USA in Washington.