The dollar traded firmly higher on Tuesday, anticipating the release of the Institute for Supply Management's (ISM) Manufacturing Purchasing Managers Index (PMI) data. The Greenback's positive turnaround followed traders' pricing in of fewer interest rate cuts from the Federal Reserve, influenced by Chairman Jerome Powell's comments. One such comment indicated that the Fed is even considering data during its blackout period for its upcoming policy meeting. This will make markets even more data-dependent leading up to the event.

Israel launched a "targeted" ground offensive in Lebanon, while Hezbollah responded with artillery and rocket fire targeting Israeli soldiers near the town of Metula. The United Arab Emirates issued a statement expressing deep concerns over Israel's ground operation, warning of potential repercussions for the region, according to Bloomberg.

European equities remained uncertain, unsure whether a potential rate cut by the European Central Bank (ECB) in October should be viewed positively or as a sign of deteriorating economic activity in the eurozone. US futures traded flat ahead of the US market opening.

EUR/USD declined for the third consecutive day. The Dollar benefited from a sour market sentiment and comments from Fed Powell, who tempered expectations for another 50-basis point interest rate cut on Monday, stating that the central bank is not in a hurry to cut rates quickly. The Eurozone published the preliminary estimate of the September Harmonized Index of Consumer Prices (HICP), which rose 1.8% in the twelve months to September, down from the 2.2% posted in August. On a monthly basis, the index decreased by 0.1%. Softer-than-expected inflation figures allow the ECB to proceed with additional monetary easing, putting pressure on the Euro.

GBP/USD declined on the day. The British currency weakened despite market expectations for the Bank of England (BoE) to reduce interest rates in November easing further after a speech by BoE external policy member Megan Greene at the National Association for Business Economics conference. Greene, who voted for leaving interest rates unchanged in the last two policy meetings, suggested that the United Kingdom's consumption-driven recovery could reignite price pressures. She warned that the return of headline inflation to the bank's target of 2% was due to a temporary decline in oil prices. Additionally, inflation in the service sector, closely tracked by BoE policymakers, at 5.6%, is "worrisome," she stated. However, she remained confident that prices are "moving in the right direction," according to Bloomberg.

Financial market participants anticipate the BoE to cut interest rates one more time in the last quarter of the year. The BoE shifted to policy normalization with a 25-bps interest rate cut on August 1 but maintained unchanged borrowing rates on September 19. Going forward, the next major trigger for the Pound Sterling will be the speech by BoE Chief Economist Huw Pill, scheduled at 14:00 GMT. Pill's speech could provide more clarity on the interest rate outlook for the remainder of the year.

USD/CAD remained relatively flat on the day. The Canadian Dollar's strong push last week reversed after yield spreads widened in favor of the USD. The pair appeared to be range-bound. The Canadian Dollar will be guided by the S&P Global Manufacturing PMI data for September, scheduled for release at 13:30 GMT. The PMI has been correcting for 16 consecutive months.