Dollar posts biggest weekly gain in 10 weeks after Warsh hints at rate hike
The U.S. dollar secured its largest weekly advance in 10 weeks after Federal Reserve Chair Kevin Warsh signaled that interest rate hikes remain possible, driving up market expectations for a September tightening and pressuring major global currencies.
The U.S. dollar advanced sharply on Friday, securing its largest weekly gain in 10 weeks, after Federal Reserve Chair Kevin Warsh indicated that interest rate hikes may be necessary to curb persistent inflation. The dollar index climbed 0.59% to 99.69, touching 99.727, its highest level since August 17.
In his debut address at the Jackson Hole symposium, Warsh stated the central bank will "have work to do" if price pressures fail to return to the 2% target. His remarks acknowledged that current financial conditions lack restrictiveness, marking his strongest signal yet that borrowing costs could rise further.
Investors rapidly repriced the path for monetary policy following the speech. Expectations for a 25 basis point rate increase at the September meeting surged to 57.5%, according to CME FedWatch, up from roughly 35% prior to the address.
The hawkish pivot pressured major developed-market currencies against the greenback. The euro fell 0.59% to $1.1582, heading for its first weekly decline after four straight weeks of gains, while sterling dropped 0.47% to $1.3528 to end a four-week winning streak.
The dollar also strengthened 0.48% against the Japanese yen, reaching 160.15. This move coincided with data showing Tokyo's annual core inflation accelerated for a third consecutive month in August, reinforcing the case for a domestic rate hike in Japan.
The Canadian dollar weakened 0.37% to C$1.39 per dollar, poised for its steepest weekly drop in just over two months. Despite a sharp second-quarter economic rebound driven by exports and domestic demand, the loonie was weighed down by collapsed trade talks and newly announced U.S. tariffs.
Despite the immediate currency rally, some market participants remain cautious about the central bank's next moves. Eugene Epstein, head of trading and structured products at Moneycorp, observed that the Fed chair is "saying a lot, but none of this seems really substantive."
Epstein added that if the central bank fails to follow through, the market will view his future commentary "with a giant grain of salt." Warsh's remarks followed Thursday statements from three other officials concerned about stubborn inflation, though Boston Federal Reserve President Susan Collins described the latest data as "mixed."
