The US Dollar exhibited a roller-coaster performance on Tuesday, initially gaining strength before leveling off. This fluctuation was largely fueled by the bond market's reaction to former President Donald Trump’s proposed spending plans, which have reignited concerns about fiscal sustainability and inflationary pressures. The US Supreme Court's recent ruling, granting Trump partial immunity in the ongoing court cases linked to the Capitol breach, has bolstered his prospects for a potential reelection.

Trump's ambitious spending plans, should they come to fruition, pose significant questions about funding mechanisms and their potential inflationary impact. The bond market, ever sensitive to fiscal imbalances, reacted with trepidation. Higher government spending, if not matched by revenue increases, could exacerbate the already precarious inflation scenario:

While the US economic calendar may be light on data this week, the heavyweights of central banking—ECB President Christine Lagarde and Fed Chairman Jerome Powell—are making their voices heard at the Sintra ECB symposium. Powell's remarks provided crucial insights into the Fed's outlook. He noted that service inflation tends to be more persistent, wage increases are trending towards sustainable levels but are still above equilibrium, and the labor market is cooling off. He projected that inflation might revert to the 2% target late next year or the following year. These comments hint at a cautious yet optimistic stance, suggesting a gradual normalization of monetary policy.

The market, as indicated by interest rate futures, currently prices in a nearly 35% probability that the Fed will leave the policy rate unchanged in September. However, should Powell signal an improving inflation outlook post-last Friday’s PCE Price Index, the USD could struggle to maintain demand.

Today, the spotlight also turns to the JOLTS Job Openings data for May, with expectations of a slight decline to 7.9 million from the previous 8.059 million. This data point will be closely scrutinized, as it offers additional clues about the labor market's health and its implications for wage inflation and consumer spending.

Looking at the US Dollar Index (DXY) on the 4-hour chart, we can observe a clear consolidation pattern just above the 105.89 level, which aligns with the crucial support mentioned earlier. The DXY appears to be trading within an ascending channel, with the upper boundary providing a potential resistance around the 106.50 mark. This consolidation phase could be indicative of a bullish continuation, especially if the index manages to break above the 106 resistance zone. The RSI is hovering around the midline, suggesting a balance between buying and selling pressures, but a break above the consolidation zone could signal renewed bullish momentum. Given the current market sentiment and Powell’s cautious optimism on inflation, the bias for DXY remains slightly bullish: