- With minor increases, the DXY Index reached a high of 106.1, its highest level since early November.
- The hawkish posture of Fed Chair Powell and the multi-month high US Treasury yields are the main points of interest for investors.
- We’ll be keenly observing the Fed’s Beige books, which are scheduled for release later in the session.
At 106.10, the US Dollar Index (DXY) is exhibiting some modest improvements. A number of reasons, including the US’s robust growth and ongoing inflation as well as Fed officials’ heightened hawkishness, appear to have influenced the index’s trend shift.
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 holds its ground on hawkish Fed bets
- 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 current day’s rates on US Treasury bonds for the 2-year, 5-year, and 10-year maturities are 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 20-, 100-, and 200-day Simple Moving Averages (SMAs), suggesting that the current market is dominated by bulls. 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.