US Dollar Index (DXY) returns above 98.00 as investors digest the Middle East truce

• The Dollar trims previous losses as the optimism about the Middle East ceasefire eases.

• Fed Chairman Powell maintained a cautious stance towards interest rate cuts in his testimony to Congress.

• A downbeat Consumer Confidence survey undermined confidence in Powell's hawkish stance.
  

The US Dollar is trading with minor gains on Wednesday, trimming losses after a nearly 1.30% decline on the previous two days. Markets have turned more cautious as the enthusiasm about the ceasefire in the Middle East ebbs, although Investors’ hopes that the Fed will cut rates over the next months are limiting upside attempts.

The ceasefire between Israel and Iran holds for the second day, and that is keeping a moderate appetite for risk, but a US intelligence report stating that the attacks had only delayed Iran’s nuclear program for a few months casts doubt on a long-lasting peace.

Fed Powell fails to curb rate cut expectations

On Tuesday, Fed Chairman Jerome Powell resisted President Trump's calls for a rate cut and the divergence within the central bank’s monetary policy committee, and confirmed that the central bank is not rushing to cut rates.

Powell reiterated that the bank was well-positioned to react to a highly likely increase in prices when the impact of Trump’s tariffs filters through the US economy, to weigh on economic activity.

Macroeconomic data, however, revealed that the economy is already losing steam. The Conference Board’s Consumer Confidence deteriorated against expectations in June, with consumers wary about the labour market.

These figures come after a string of downbeat macroeconomic releases over the last two weeks, which are feeding market expectations that the bank will cut rates twice this year. Futures markets are increasingly pricing a 25 bps cut in September and another one in December, and this is keeping US Dollar’s upside attempts limited.