Fed Uncertainty Persists Ahead of Warsh's Pivotal Speech

The Federal Reserve's decision on interest rates remains uncertain ahead of its September meeting. The US economy's growth and inflation data released yesterday were mixed, but did not sway expectations that the Fed will maintain its current stance. Core PCE, the preferred inflation gauge, came in as expected at 0.2% month-on-month and 3.3% year-on-year. However, real personal spending was unchanged in July despite higher real disposable income.

The market's conundrum over a potential rate hike may be exacerbated by its own expectations, which currently price in a 9bp chance of a hike. This could lead the Fed to reconsider and hike rates to avoid triggering bond volatility. The speech by Chair Kevin Warsh at Jackson Hole tomorrow will be a pivotal event for markets.

The US dollar found some support above 99.0 ahead of the speech, despite upbeat risk sentiment following strong Nvidia results. Meanwhile, the Canadian and Australian dollars are on different trajectories, with CAD seen as having further to fall due to ongoing trade tensions.