• DXY struggles to capitalize on a two-day-old recovery move from the yearly trough.
• Reduced bets for a 50 bps Fed rate cut and geopolitical risks lend support to the USD. 
• The US ADP report might provide some impetus ahead of the US NFP report on Friday.

The US Dollar Index (DXY), which tracks the Greenback against a basket of currencies, consolidates its gains registered over the past two days and oscillates in a range, just above the 101.00 mark, through the early European session on Wednesday. The Index, for now, seems to have stalled this week's goodish recovery move from the vicinity of its lowest level since July 2023, though the fundamental backdrop warrants some caution for bearish traders. 

The Federal Reserve (Fed) Chair Jerome Powell earlier this week adopted a more hawkish tone and said that he sees two more 25 basis points interest rate cuts this year as a baseline if the economy performs as expected. Adding to this, the Job Openings and Labor Turnover Survey (JOLTS) published by the US Bureau of Labor Statistics (BLS) showed that the number of job openings unexpectedly increased after two straight monthly declines, to 8.04 million in August. The data pointed to a still resilient US labor market and forced investors to further scale back their expectations for a more aggressive policy easing by the Fed. 

This, along with a further escalation of geopolitical tensions in the Middle East, turns out to be another factor acting as a tailwind for the safe-haven USD. Iran launched over 200 ballistic missiles at Israel on Tuesday in retaliation to the latter's campaign against its Hezbollah allies in Lebanon. Furthermore, Israeli Prime Minister Benjamin Netanyahu promised that Iran would pay for its missile attack, while Iran said any retaliation would be met with vast destruction, raising the risk of a broader conflict in the region. This, in turn, tempers investors' appetite for riskier assets and drives flows towards traditional safe-haven assets.