USD strengthens as Fed's Powell signals fewer rate cuts ahead

The US dollar index gained 0.5% following Federal Reserve Chair Jerome Powell's hawkish comments on Tuesday, which dampened market expectations for aggressive rate cuts. Powell emphasized the Fed's data-dependent approach and suggested that the central bank may proceed more cautiously with monetary easing than markets had anticipated. This shift in tone saw traders pricing in only 25 basis points of cuts by year-end, down from 50 basis points previously expected. Major currency pairs reacted sharply, with EUR/USD falling 0.4% to 1.0820 and GBP/USD dropping 0.3% to 1.2650. The dollar's yield advantage remains attractive as US Treasury yields rose across the curve. Technical indicators suggest further dollar strength possible, with the DXY approaching resistance at 106.50. Traders should monitor upcoming US economic data releases which could either reinforce or challenge the Fed's hawkish stance.