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• The US Dollar receives support from the increased risk aversion.
• The upside of the Greenback could be limited due to the dovish sentiment surrounding the Fed’s policy stance.
• The decline in the Treasury yields could put pressure on the US Dollar.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against six other major currencies, moves sideways and trades around 104.50 during the early European hours on Wednesday. The decline in the US Treasury yields might have put pressure on the Greenback, with 2-year and 10-year yields on US bonds standing at 4.44% and 4.24%, respectively, at the time of writing.

However, the US Dollar (USD) may face pressure as expectations rise for a Federal Reserve (Fed) rate cut in September. Last week, Fed Chair Jerome Powell noted that the three US inflation readings this year "add somewhat to confidence" that inflation is on track to meet the Fed’s target sustainably, implying that interest rate cuts might be approaching.

According to CME Group’s FedWatch Tool, markets now indicate a 93.6% probability of a 25-basis point rate cut at the September Fed meeting, up from 88.5% a day earlier.

Meanwhile, investors seek fresh developments on the US presidential elections in November. Market experts see Donald Trump winning the elections despite Democrats rallying behind Vice President Kamala Harris as the leading candidate for the presidential nomination. NBC News projected that Harris had secured endorsements from a majority of the Democratic party’s pledged convention delegates. The threshold for securing the nomination is 1,976 delegates, and NBC estimates that Harris has received the support of 1,992 delegates, either through spoken or written endorsements.

Investors are expected to closely monitor the US Purchasing Managers Index (PMI) data, set to be released later in the North American session. Additionally, attention will be on the Gross Domestic Product (GDP) Annualized (Q2) figures, which will be released on Thursday. These reports are anticipated to offer fresh insights into the economic conditions in the United States.

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