Dollar rises to session high after Warsh comments, set for weekly gain

The U.S. dollar reached a session high and is set for a weekly gain after Federal Reserve Chair Kevin Warsh suggested potential interest rate hikes if policymakers doubt inflation returning to the 2% target. Warsh's remarks during his inaugural speech at the Jackson Hole symposium of central bankers indicated the Fed would need to work towards higher rates if inflation did not appear to be cooling down.

Following Warsh's comments, expectations for a rate increase of at least 25 basis points at the September meeting surged to around 50%, compared to 35% before the speech. Warsh's comments, while acknowledging financial conditions are not restrictive and showing the closest he has come to admitting interest rate hikes might be necessary, have been described as not very substantive by Eugene Epstein, head of trading and structured products at Moneycorp.

The dollar's strength, along with the euro's weakness, has resulted in the greenback gaining nearly 0.7% for the week, reaching the highest level since August 19.