Warsh Hints at More Rate Hikes, Dollar Strengthens to Near Two-Week High

The US dollar strengthened to near a two-week high on Monday after Federal Reserve Chair Kevin Warsh hinted at another interest rate hike. Warsh's comments boosted bets on a September rate increase, with implied probability rising to 58%.

This fueled the market's expectations of a rate hike next month, pushing yields on interest-rate-sensitive 2-year US Treasury notes to just below a more than one-month high. Rabobank's Elwin de Groot said Warsh's prepared remarks 'seemed designed to lift rate-hike expectations' and rebalance the September debate towards the hawks.

The euro edged up slightly, while sterling inched higher as both currencies remained on track for their second consecutive monthly gains. The dollar index declined 0.11% to 99.53 after hitting 99.73 on Friday, its strongest since August 17.