Dollar Near Two-Week High After Warsh's Hawkish Remarks

The dollar held near a two-week high on Monday after Federal Reserve Chair Kevin Warsh hinted at further rate hikes to combat inflation. Warsh's comments, made on Friday, indicated that policymakers would need confidence that inflation is headed towards their target of 2% before they can ease off the brakes.

This sparked bets on a September rate hike, with markets now pricing in a 57% chance of a move next month. Implied probabilities were higher than at any point since mid-August, and yields on interest-rate-sensitive two-year U.S. Treasury notes rose to a one-month high of 4.33%. Warsh's remarks also helped rebuild the Fed's credibility and ease concerns about currency debasement.

The dollar index ticked down slightly to 99.6 after jumping 0.6% on Friday, but remained near its strongest level since August 17. Meanwhile, the yen slipped back through the closely watched 160-per-dollar level as investors turned their focus to upcoming U.S. data releases and the September Fed meeting.