US Dollar Index remains on the defensive below 97.00 as traders await the Fed rate decision

• US Dollar Index recovers some lost ground around 96.70 in Wednesday's early Asian session, but upside seems limited.
• The prospect of a Fed rate reduction continues to undermine the US Dollar. 
• The Fed rate decision 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, remains on the defensive near 96.70 as investors firmed bets for a Federal Reserve (Fed) interest rate cut later on Wednesday. 

Markets expect a 25 basis points (bps) rate cut at the Fed's September meeting on Wednesday, after the US labor market has shown signs of a slowdown. According to the CME FedWatch tool, traders are now pricing in a near 100% probability of a quarter-point rate cut at the upcoming meeting. A small minority even sees a possibility of a jumbo rate cut. 

Fed Chair Jerome Powell is scheduled to hold a press conference following the policy statement on Wednesday. Traders will keep an eye on the FOMC Press Conference and a Summary of Economic Projections (SEP), or 'dot-plot,' for some hints about the US interest rate path.

"The dollar is trading with a heavy tone across the board as investors brace for a dovish message in Wednesday's voting record, 'dot plot' summary of economic projections, and press conference," said Karl Schamotta, chief market strategist at Corpay.

On the other hand, the risk-off mood or easing geopolitical tensions could boost the safe-haven flows, benefiting the DXY. US President Donald Trump said Zelenskyy will "have to get going and make a deal" to end the Russian invasion of Ukraine as he ramped up pressure on the EU and NATO countries to "stop buying oil from Russia."