- The yield on US Treasury bonds is falling but is still at a multi-month high.
- Investor attention is centered on Fed Chair Powell’s aggressive approach.
In the US session, the US Dollar Index (DXY) fell below 106.00. But there’s good news for the Greenback because hawkish wagers on the Federal Reserve (Fed) could serve as a buffer. Furthermore, Wednesday’s declining trends could be interpreted as a minor adjustment.
Strong growth and sticky inflation are present in the US economy. Fed Chair Powell’s hawkish approach indicates that the Fed prefers market tightening through higher rates and wider spreads, which supports the USD, over another rate hike. Further tightening is necessary, though, as long as financial conditions remain lax. Powell stated on Tuesday that the monetary policy might take longer to take effect.
Daily digest market movers: DXY corrects lower, Fed’s Beige Book should positive results and US yields decline
- According to the Fed’s Beige Book, since late February, overall economic activity has increased little.
- On Tuesday, Federal Reserve Chair Powell was perceived as being hawkish and cautioned that there hasn’t been much movement on inflation. He added that the bank is still dependent on statistics.
- The likelihood of a rate cut at the June meeting is currently only 15%, a significant decrease from the 60% that was predicted the week before. In addition, there is now less than 50% possibility of a rate cut in July.
- There is a 95% chance that the first rate cut will occur in September, and a 70% chance that it will occur in December.
- The 2-year, 5-year, and 10-year US Treasury bond rates are currently lower for the day at 4.93%, 4.63%, and 4.61%, respectively. The 2-year and 10-year yields are at their highest levels since November, notwithstanding the recent decline.
DXY technical analysis: DXY displays bulls’ stronghold despite overbought conditions.
The Relative Strength Index (RSI) is still showing overbought circumstances on the daily chart, indicating that a correction or consolidation phase is likely. Reduced green bars on the Moving Average Convergence Divergence (MACD) indicate that the purchasing momentum is waning and that the bears may soon seize control.
But the pair is sitting comfortably above its Simple Moving Averages (SMAs) for the next 20, 100, and 200 days, suggesting that the bulls are in control of the market right now. Given that the bulls are holding their ground despite technical signs indicating a short-term bearish influence, this points to a favorable medium- to long-term prognosis.