Dollar Rises as Warsh Suggests Potential Rate Hikes

The US dollar rose to its highest level in two weeks after Federal Reserve Chair Kevin Warsh hinted at potential interest rate hikes if policymakers doubt that inflation is heading back towards the central bank's 2% target.

In his debut speech at the Jackson Hole symposium, Warsh said the Fed will 'have work to do' should inflation not appear to be cooling. This was seen as a close acknowledgement of the possibility of interest rate hikes to ease price pressures.

Expectations for a rate hike of at least 25 basis points at the Fed's September meeting jumped to about 50% following Warsh's comments, up from about 35% before the speech. The dollar index rose 0.35% to 99.46 and the euro fell 0.34% to $1.1611.

Eugene Epstein, head of trading and structured products at Moneycorp, said that Warsh's comments were 'a lot of talk' but didn't seem 'substantive'. He warned that if the Fed doesn't follow through with rate hikes, market credibility will be eroded and investors will view his commentary with skepticism.