Dollar Bulls Reassert Themselves Amid Hawkish Fed Sentiment

The US Dollar has gained momentum this week, driven by Fed Chair Kevin Warsh's hawkish remarks at the Jackson Hole Symposium. The USD Index reached its highest level in two weeks above 99.70 on Friday and remains steady around 99.50 in the European morning on Monday.

Warsh's comments emphasized that 'we have work to do' on prices, signaling a bias toward keeping policy tight or tightening further if inflation progress stalls. This has reinforced Dollar strength, with the probability of a 25 basis points Fed rate hike in September standing at around 60%, according to the CME FedWatch Tool.

The market's reaction to Warsh's speech combined a slightly more hawkish near-term policy outlook with lower longer-term inflation and policy-risk premia. Strategists at Rabobank note that investors interpreted the speech as reducing policy uncertainty and reinforcing the Fed's commitment to restore price stability.