• The US Dollar appreciates on higher US yields, to test one-month highs, at 147.80.
• Investors pare back US Dollar shorts ahead of key US macroeconomic releases.
• Recent Japanese data has put an immediate BoJ rate hike into question.

The US Dollar is going through a strong comeback on Tuesday. The pair appreciates nearly 1% so far today, and has reached the highest level since August 1, right below 147.80, although it remains capped below that level so far.

A risk-averse market sentiment is underpinning demand for the Greenback, which is also drawing some support from the higher US Treasury yields as the US market opens after a long weekend with a string of key US macroeconomic figures.

The Calendar opens today with the US ISM manufacturing PMI release, which is expected to show some improvement in the sector’s activity, yet still at contraction levels. The Prices Paid and the Employment sub-indices could muddle the impact of the data with the Fed's monetary policy meeting looming.

The US Dollar rallies ahead of key US data releases

Investors’ focus, however, will be on job numbers, namely Friday’s Nonfarm Payrolls report. The US Dollar is likely to be particularly sensitive to weak employment numbers. After last month’s shock, any further evidence of a deteriorating labour market would practically confirm a Fed cut in September and increase pressure on the USD.

In Japan, the focus will be on the August Tokyo CPI index, which will be analysed with special attention to assess the odds for the BoJ tightening in September, an option that is gaining ground after recent comments from Governor Ueda, warning about the inflationary trend in wages.

In Japan, the BoJ has reiterated its commitment to higher interest rates, but the easier inflation pressures seen last week and the downbeat retail consumption and factory activity cast doubt about the timing of the next rate hike, and put a lid on the Japanese Yen’s recovery.