US Dollar: Jackson Hole keeps hike risk alive – MUFG

The US Dollar experienced a modest gain following the Fed Chair's speech at the Jackson Hole conference, with the DXY index rising around 0.3% since the beginning of the week and 2-year Treasury yields surging sharply. While the Fed Chair's emphasis on inflation not falling at a sufficient pace increases the risk of a rate hike, the Federal Open Market Committee's recent caution and incoming economic data like NFP and CPI could still support holding rates, limiting aggressive buying of the US Dollar.

The US Dollar rose 0.5% on Friday following the speech by Fed Chair Warsh but the gain has since retraced to a more modest 0.3% since Friday's open. Multiple factors contribute to the more subdued Dollar reaction, including the fact that all G10 central banks are meeting this month and some may hike rates, while others may remain on hold.

If energy prices continue to be elevated, central bankers' rhetoric could become more hawkish, potentially dampening the appetite for US Dollar buying. Despite Warsh's hawkish tone during the Jackson Hole speech, his remarks were not vastly different from his previous speeches, as he reiterated the need for inflation to decline at a sufficient pace.

The decision to raise rates remains uncertain, pending the release of the upcoming NFP and CPI data.