Dollar Rallies on Rate Hike Bets as Yen Hits New Lows
The US dollar strengthened to near a two-week high on Monday, driven by growing bets of a rate hike after Federal Reserve Chair Kevin Warsh's hawkish remarks. Markets now predict a 57% chance of a September rate increase, with yields on two-year US Treasury notes rising to over one-month highs.
Warsh stated that the Fed would have 'work to do' if policymakers don't get confidence in inflation falling below 2%. This stance fueled expectations for further tightening to curb price pressure. As a result, investors turned their focus to upcoming economic data, including Friday's nonfarm payrolls report and next week's consumer inflation figures.
The dollar index ticked down slightly to 99.6 after jumping 0.6% on Friday, but was still on track for its second consecutive monthly decline due to revived debasement trades from US Treasury bond-buyback plans. The euro and sterling remained stable, with the euro edging up 0.1% to $1.1591.
The yen slipped below 160 per dollar, a level viewed as increasing intervention risk, while Bank of Japan Governor Kazuo Ueda is expected to 'do the right thing' on monetary policy according to US Treasury Secretary Scott Bessent.