The US dollar steadied near its lowest level in several weeks on Tuesday, as investors assessed the likelihood of an imminent interest rate cut, alongside uncertainty over the fate of US tariffs.

By 04:39 a.m. Eastern Time (08:39 GMT), the dollar index which measures the performance of the US currency against a basket of major peers rose 0.6% to 98.30, but remained close to the five-week low it touched on Monday. In contrast, the euro fell against the dollar following the release of fresh inflation data from the eurozone, while the British pound dropped 1.0%.

US Employment Data in Focus

Traders this week are focused on the August nonfarm payrolls report, due Friday, which will be crucial in cementing bets on the Federal Reserve cutting interest rates at its September 1617 meeting. Data from the CME FedWatch tool shows markets are pricing in an 87% chance of the Fed lowering its benchmark rate by 25 basis points.

These expectations were reinforced after Fed Chair Jerome Powell, at an economic symposium last month, said policymakers were ready to adjust policies if inflation continued to ease and the labor market showed signs of slowing. Analysts at ING wrote in a note: Remember that the July jobs report particularly the negative revisions totaling 258,000 jobs for previous months was the reason behind the reversal of the dollar rally in July, which pushed Fed Chair Jerome Powell to open the door to a September rate cut.

They added: Again, the focus is expected to fall heavily on subsequent monthly revisions, given that only 60% of survey participants respond in the first month.

Later on Tuesday, data on US manufacturing activity from the Institute for Supply Management (ISM) is due, to be followed this week by a services-sector reading, which accounts for more than two-thirds of activity in the worlds largest economy, while manufacturing represents about 10% of GDP.

Uncertainty Over US Tariffs

At the same time, the fate of US tariffs remains unclear. A US appeals court ruled last week that most of the tariffs imposed by President Donald Trump were illegal, a decision that could undermine one of his main economic policy tools and a bargaining chip in international negotiations. However, the court left the tariffs in place until October 14, to allow time for the Trump administration to appeal to the US Supreme Court.

The impact of tariffs remains a persistent question for markets and also for the Federal Reserve in shaping its policies. Despite Trumps repeated calls for rapid rate cuts, the Fed this year has maintained a more cautious wait-and-see stance before making any significant monetary policy decisions.

In a separate development, Trump recently pushed to dismiss Fed Governor Lisa Cook, raising expectations that the White House may seek to appoint rate-setters more inclined toward advocating faster interest rate cuts.