The Dollar slipped on Tuesday ahead of US inflation data and the upcoming presidential debate, both of which could influence the interest rate outlook.

A mixed labour report on Friday didn't clarify whether the Federal Reserve would opt for a standard 25 basis point rate cut or a larger 50 basis point cut at its 17th-18th September meeting. 

Traders are now anticipating Wednesday's US consumer price index report for further guidance.

Barclays strategists observed that the greenback usually weakens before the Federal Reserve begins easing cycles and often overestimates rate cuts during periods of economic adjustment. 

However, they suggested that much of the recent movement in the dollar may have already occurred, according to Reuters reports.

Investors are also keeping a close eye on the highly anticipated televised US presidential debate later on Tuesday, which could significantly impact the November election.

Investors anticipate that the Dollar could strengthen if Donald Trump wins due to potential tariffs supporting the currency and increased fiscal spending leading to higher interest rates. 

The Dollar index, monitoring the currency against six peers, was at 101.59 at the time of writing, down by 0.06%.

Markets are currently fully expecting a 25-basis point rate cut next week, while the likelihood of a 50-basis point cut has decreased to 30%, down from 50% on Friday, according to the CME FedWatch tool. 

For 2024, traders are anticipating a total of 110 basis points of easing, an increase from the approximately 100 basis points expected from the remaining three meetings.

Furthermore, the Euro was trading at $1.1043 at the time of writing after falling almost 0.5% on Monday.

Investors were paying attention to Europe's political situation, noting the ongoing deadlock in France and increased uncertainty throughout the EU following the German regional elections.

“The resilience of the Euro this year can be partly explained by the region’s current account surplus and by the market’s nonchalance regarding the budget issues faced by various EU countries such as Italy and France,” said Jane Foley, senior forex strategist at RaboBank.

“However in the second half of the year fiscal policy will be more in focus and this could affect the single currency.”