Dollar Hits Two-Week High as Rate Hike Bets Surge Amid Warsh Comments
The US dollar has reached a two-week high due to increased bets on a rate hike following Federal Reserve Chairman Kevin Warsh's hawkish remarks. Warsh stated that policymakers will 'have work to do' if they don't get confidence that inflation is heading down to 2%, indicating that further tightening may be needed. This sparked market expectations of a September rate hike, with the implied probability rising to 57%.
Market strategist Sim Moh Siong from OCBC notes that Warsh's defense of the inflation target has reduced a major drag on the US dollar and shifted focus back to economic fundamentals. This has helped rebuild the Fed's credibility and eased concerns about currency debasement.
The euro edged up 0.1% to $1.1591, while sterling remained little changed at $1.3539. The yen slipped past the closely watched 160-per-dollar level, with its weakness in focus due to a persistently weak rate gap and negative real rates.