Dollar Pullback Tests Whether Hawkish Repricing Can Stick

The US Dollar started September on the back foot, losing roughly half of its gains triggered by Federal Reserve Chair Kevin Warsh's hawkish speech on Friday.

Despite the dollar's weakness, expectations for Fed tightening have largely held, with the front end of the US curve remaining firmly repriced.

The two-year SOFR rates are holding above 4.20%, more than 10 basis points higher than before Warsh spoke, while markets are pricing around 16bp of tightening for September and roughly 37bp by year-end.

Long-term US yields have moved higher, partly alongside the renewed rise in oil prices following the latest exchange of strikes between the US and Iran.