The U.S. dollar traded relatively stable on Tuesday as it resumed trading following the Labor Day holiday. The greenback strengthened slightly against most major currencies, except for the Japanese yen. Meanwhile, markets experienced some volatility due to news that Volkswagen is considering closing factories in Germany for the first time, a significant blow to the German government and the European economy.

Today's economic calendar featured the August Institute for Supply Management (ISM) Manufacturing survey. Traders closely watched this report to gauge the health of the U.S. manufacturing sector. The headline PMI was expected to rise to 47.5 from 46.8 in July. If the data exceeded 50, indicating expansion in manufacturing activity, it could have provided additional support for the U.S. dollar.

EUR/USD traded slightly lower at the start of the session. Investors focused on the upcoming August U.S. nonfarm payrolls data, which will be released on Friday. The labor market data will offer clues about the potential size of the Federal Reserve's interest rate cut in September. Market participants remained confident that the Fed would begin to normalize its monetary policy this month. Speculation about European Central Bank (ECB) interest rate cuts in September had increased as Eurozone inflation pressures had decelerated significantly, and signs of a potential recession in Germany had grown. Eurozone headline inflation fell to 2.2% in August due to a sharp decline in energy prices.

GBP/USD was lower on the day as technical indicators suggested that sellers remained in control, with focus shifting to the August ISM Manufacturing PMI data from the U.S. As trading conditions normalized, the U.S. dollar benefited from a souring risk mood, causing GBP/USD to decline further. Traders saw little chance of a Bank of England (BoE) interest rate cut in September but were confident about a potential cut in November, according to Reuters. Market speculation for September interest rate cuts was weak as inflationary pressures in the United Kingdom were expected to remain sticky due to strong economic prospects. Additionally, comments from BoE Governor Andrew Bailey at the Jackson Hole Symposium indicated that the central bank would be cautious about cutting interest rates too quickly or by too much.

USD/CAD traded higher, looking to extend its gains. Rising U.S. Treasury yields provided support for the U.S. dollar, but its gains could be limited by growing expectations of a quarter-basis point rate cut by the Fed in September. According to the CME FedWatch Tool, markets were nearly 70% confident of at least a 25-basis point rate cut at the Fed's September meeting. The Bank of Canada's interest rate decision on Wednesday would be closely monitored. It was widely anticipated that the BoC would reduce interest rates for the third consecutive time during its September meeting. Investors expected the Canadian central bank to lower its benchmark rate by a quarter percentage point to 4.25%, with additional cuts likely throughout the remainder of the year and into 2025.