Forex Today: Tensions re-escalate in Mideast, USD consolidates Fed-inspired rally
Here is what you need to know on Monday, August 31:
On Monday, August 31, financial markets exhibited a cautious sentiment as investors evaluated the likelihood of a Federal Reserve (Fed) interest rate increase in September amidst escalating Middle Eastern tensions. The economic calendar highlighted preliminary August inflation data from Germany. Over the past week, the US Dollar (USD) demonstrated strength against the New Zealand Dollar.
Fed Chair Jerome H. Warsh delivered a more hawkish statement at the Jackson Hole Symposium, suggesting continued policy tightness if inflation progress stalls. The FXS Fed Sentiment Index remained at a hawkish level of 129.70. The USD Index experienced a gain of more than 0.5% and reached its highest level in two weeks above 99.70.
The probability of a 25 basis points (bps) Fed rate hike in September, according to the CME FedWatch Tool, was estimated at around 60%. Longer-dated Treasury yields decreased, indicating investors perceived the speech as reducing policy uncertainty and reinforcing the Fed's commitment to price stability. The US and Iran engaged in military strikes, leading to crude oil prices rising by 1.5% in the early European session.
Gold (XAU/USD) declined by more than 3% due to USD strength. EUR/USD recovered slightly near 1.1600, while GBP/USD stabilized around 1.3550.
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