Dollar Slips on Bessent Comments, Hawkish Sentiment Lingers

The US dollar index (DXY) fell by -0.28% on Monday due to dovish comments from US Treasury Secretary Bessent.

Bessent suggested that the Fed traditionally doesn't raise interest rates in response to a supply shock, which could be at odds with previous statements from Fed Chair Warsh.

This sentiment weighed on the dollar, but its losses were limited by several factors. WTI crude oil rallied more than +2% to a 1-week high, boosting inflation expectations and potentially persuading the Fed to raise interest rates.

The market is now discounting a 65% probability of a +25 bp rate hike at the next FOMC meeting on September 15-16. This increased prospect of higher interest rates has strengthened the dollar's interest rate differentials, providing some carryover support from last Friday's hawkish comments from Fed Chair Warsh.