EUR/USD Slumps as Fed Hawkishness Sends Dollar Soaring
The EUR/USD has retreated to near two-week lows following Federal Reserve Chair Kevin Warsh's hawkish performance at Jackson Hole. In a significant boost to the dollar, Warsh stated that with inflation not slowing sufficiently, the regulator may need to tighten policy again.
Market expectations for a September rate hike have surged from 35% to 57%, supported by rising Treasury yields and a stronger dollar. The yield on two-year US Treasury notes has climbed to 4.33%, further enhancing the appeal of dollar-denominated assets.
The main event of the week will be Friday's August Nonfarm Payrolls report, which is expected to show an increase in employment of around 50,000 following a decline of 23,000 in July. Strong payrolls, combined with steady wage growth and a stable average working week, would support Warsh's hawkish stance and may put pressure on EUR/USD below 1.16.
Technical analysis suggests that the pair remains bearish, with further downside towards 1.1533 and 1.1511 likely in the near term.