Dollar Surges to Two-Week High as Rate Hike Bets Intensify

The dollar maintained its strength on Monday, reaching a two-week high as investors increased their bets on a rate hike following hawkish comments from Federal Reserve Chair Kevin Warsh. Warsh stated that policymakers will 'have work to do' if they don't gain confidence that inflation is heading down to 2%, indicating that further tightening may be necessary.

Markets responded by raising the implied probability of a September rate hike to 57% and increasing yields on two-year U.S. Treasury notes to a more than one-month high of 4.33%. OCBC's FX strategist Sim Moh Siong noted that Warsh's defense of the inflation target had reduced a major drag on the U.S. dollar, shifted focus back to economic fundamentals, and rebuilt the Fed's credibility.

Investors are now focused on upcoming U.S. data releases, particularly Friday's nonfarm payrolls report and next week's consumer inflation figures, which could shape expectations ahead of the September Fed meeting. The euro edged up 0.1% to $1.1591, while sterling remained little changed at $1.3539.

The dollar index ticked down slightly to 99.6 after jumping 0.6% on Friday to its strongest level since August 17. Despite this, the index remains on track for a second consecutive monthly decline due to U.S. Treasury bond-buyback plans earlier in the month.