The US Dollar held steady on Tuesday after reaching a 10-week high on Monday. This strength is underpinned by investors adjusting their expectations regarding the Federal Reserve's monetary policy trajectory. The prevailing sentiment is that the Fed will not cut interest rates as quickly or as aggressively as previously anticipated. Additionally, emerging political developments, notably the potential resurgence of former President Donald Trump in the upcoming presidential election, are beginning to influence market dynamics.

Recent economic data and Fed communications have led markets to reassess the likelihood of imminent rate cuts. The latest interest rate derivatives data implies an 88.2% probability of a 25-basis-point rate cut in November, with no significant expectations for a larger 50-basis-point reduction. This reflects a market consensus that the Fed will maintain a cautious approach to easing monetary policy. Also, Minneapolis Fed President Neel Kashkari reiterated the Fed's commitment to a data-dependent approach. Highlighting the economy's resilience, he noted the continued easing of inflationary pressures alongside a robust labor market, despite a slight uptick in unemployment. This suggests the Fed is comfortable maintaining current rates until there's clear evidence of sustained inflation decline towards the 2% target.

The adjustment in rate expectations supports the USD by making dollar-denominated assets more attractive. A higher interest rate environment tends to bolster the currency due to increased yields for investors.

Markets are beginning to factor in the possibility of a victory for former President Donald Trump in the November 5 presidential election. Betting markets and some polls have shown the Republican nominee gaining traction.

Political uncertainty often leads to increased volatility. A potential Trump win introduces variables related to trade policies, regulatory changes, and fiscal stimulus measures. Investors may gravitate towards the USD as a safe-haven asset amid these uncertainties.

Latest macroeconomic updates showed that, NY Empire State Manufacturing Index fell sharply into contraction territory at -11.9 in October, down from an increase of 11.5 in September and below expectations of a positive 2.3. This suggests a significant slowdown in manufacturing activity in the New York region.

German ZEW Economic Sentiment Index improved to 13.1 in October from 3.6 in September, surpassing expectations of 10.0. This indicates growing optimism among German investors and analysts about future economic conditions.

EU Industrial Production increased by 1.8% in August MoM, aligning with expectations and reversing the -0.5% decline in July. YoY reading edged up by 0.1%, outperforming the expected -1.0% decline and the previous -2.1% figure. The rebound in industrial output points to a potential stabilization in the Eurozone's manufacturing sector. This could alleviate some recessionary fears and support the Euro in the medium term.

Despite positive industrial data, EURUSD pair remained relatively unchanged above 1.0900. This may reflect overarching USD strength and cautious sentiment due to mixed Eurozone indicators. Medium-term technical setup points to significant downside risks as the key selling target near 1.08 hasn’t been reached yet:

UK Employment Data showed that unemployment rate eased to 4.0% in the three months leading up to August, slightly better than the expected 4.1%. Employment Change showed an increase of 373K, significantly higher than July's 265K. Average earnings (Excluding Bonuses) rose by 4.9% year-on-year, matching expectations but slightly below July's 5.1%.

The mixed data suggests that while employment is growing, wage growth is moderating.

On the technical side, the rebound from 1.30 level was moderate which increases likelihood of extension of the downside trend with major bearish target near 1.29: