Warsh Hawks Dollar Above 160 as Oil Prices Soar
The US dollar gained strength against major currencies after Federal Reserve Board member Kevin Warsh's speech at Jackson Hole, which was perceived as hawkish. This rhetoric led to a rise in Treasury bond yields and put pressure on stock indices. As a result, the futures market now puts the probability of a Fed rate hike in September at 60%, up from 38% previously.
The escalation of the conflict in the Middle East has also contributed to rising economic indicators, with Brent crude prices above $90 per barrel for the first time since July 29. This heightens the risk of accelerating inflation and prompts the Federal Reserve to tighten monetary policy.
The strengthening US dollar allowed speculators to push the USD/JPY exchange rate above the critical 160 mark, although it did not hold that level on its initial attempt. Futures markets are now pricing in a probability of over 80% for the Bank of Japan to raise its overnight rate at the next meeting in September.
Japan's involvement in coordinated currency interventions has been revealed, with Treasury Secretary Scott Bessent explaining to Congress that Japan is the largest holder of Treasuries. The risk of destabilising financial markets and increasing borrowing costs in the US was cited as a concern.