US Dollar sees mild gains ahead of Fed's Beige Book

• The DXY Index is recording mild gains, hitting a high since early November at 106.1.
• Investors are focusing on Fed Chair Powell's hawkish stance and US Treasury yields at multi-month highs.
• The Fed’s Beige books, set to be released later in the session, will be closely watched.

The US Dollar Index (DXY) stands at 106.10, showing mild gains. The shift in the index's trend appears influenced by several factors including strong growth and persistent inflation in the US, as well as increased hawkishness from Federal Reserve (Fed) officials.

The US economy is seeing sticky inflation and robust growth. Fed Chair Powell's hawkish stance shows that instead of another rate hike, the Fed favors market tightening through higher yields and wider spreads, which strengthens the USD. However, with financial conditions still loose, further tightening is required and Powell commented on Tuesday that the monetary policy may need additional time to work.

Daily digest market movers: DXY holds its ground on hawkish Fed bets

• Federal Reserve Chair Powell was seen hawkish on Tuesday and warned that there is little progress on inflation. He also stated that the bank remains data-dependent.
• The possibility of a rate cut in the next meeting in June stands at around 15%, a huge drop compared to the previous week's 60%. Also, the chances for a July rate cut have fallen below 50%.
• The first-rate cut is expected to take place in September with a 95% probability, followed by another in December at a 70% probability.
• The US Treasury yields for the 2-year, 5-year and 10-year Treasury bonds are currently standing at 4.93%, 4.63% and 4.61%, respectively, down on the day. Despite the recent decrease, the 2-year and 10-year yields are at their highest since November.

DXY technical analysis: DXY displays bulls' stronghold despite overbought conditions.

On the daily chart, the Relative Strength Index (RSI) continues exhibiting overbought conditions, hinting at an upcoming correction or consolidation phase. The Moving Average Convergence Divergence (MACD) shows decreasing green bars, implying that the buying momentum is losing steam and that the bears may soon take charge.

However, the pair is comfortably positioned above its 20, 100 and 200-day Simple Moving Averages (SMAs), indicating the bulls' dominance in the current scenario. This suggests a positive medium to long-term outlook, with the bulls defending their ground despite the technical indicators pointing toward a short-term bearish influence.