Dollar inches lower as markets weigh Fed rate outlook; yen hovers near 160
Hawkish remarks from Federal Reserve chair Kevin Warsh fuelled bets on a September rate hike
The US dollar experienced a slight decline on Monday (August 31) as market participants considered the Federal Reserve's upcoming rate decision. The dollar edged lower, yet it remained close to a two-week peak, as traders increased their anticipation of a rate hike after Federal Reserve Chair Kevin Warsh's hawkish statements. Warsh, in his most explicit remarks yet, suggested that the central bank would require additional evidence that inflation is on track to decrease to the 2% target before implementing further tightening measures.
This fueled speculation of a potential rate increase in September, with the probability of such a move rising to 60%.
Warsh's remarks were perceived as an attempt to bolster expectations of a rate hike in September and shift the debate towards hawkish policymakers. Elwin de Groot, Rabobank's head of macro strategy, noted that Warsh's comments aimed to "rebalance the September debate towards the hawks and rebuild his inflation-fighting credibility".
In light of Warsh's signals, investors are now focusing on key economic data releases, particularly the nonfarm payrolls report and the upcoming consumer inflation figures, both of which may influence expectations leading up to the September Fed meeting.
Meanwhile, the euro edged up 0.16% to US$1.1602, while the British pound strengthened slightly to US$1.3543, signaling consecutive monthly gains for both currencies. The dollar index, which gauges the US dollar against six major currencies, slipped 0.14% to 99.51 following its record high of 99.73 on Friday. This decline was attributed to the US Treasury's plans to repurchase bonds earlier in the month, which reignited concerns about currency debasement.
In parallel, tensions in the Gulf region contributed to a rise in oil prices, with Brent crude futures surging 3.4% to US$91.06 per barrel on August 31. Recent US strikes on Iran's Larak Island and Kharg Island, while unconfirmed, further heightened geopolitical uncertainties. Meanwhile, the yen's strength, driven by the dollar's gains, put pressure on the Japanese currency, which retreated to 159.65 per dollar, near the 160-per-dollar level that signals possible intervention by authorities.
US Treasury Secretary Scott Bessent expressed confidence in the Bank of Japan's governor, Kazuo Ueda, to take appropriate action on monetary policy.
Written by urgent.news from The Business Times - Companies & Markets's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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