Warsh's Hawkish Remarks Send USD/JPY Soaring
The US dollar has strengthened across the board after Fed Chair Warsh delivered a hawkish speech at the Jackson Hole Symposium. In his speech, Warsh mentioned that he would be hard pressed to describe broad financial conditions as restrictive, which led to a market interpretation that the Fed is leaning against recent easing in financial conditions and retightening them.
The key passage from Warsh's speech extended corrections in 'debasement' trades, with the US dollar returning to pre-US Treasury announcement levels. The rate hike probabilities for the September meeting have increased, with the market now seeing a 67% chance of a hike.
Warsh also reiterated that the Fed is focused solely on inflation now and mentioned that the progress has been slow. For this reason, he believes only a soft US CPI report could bring the probabilities below 50% and deter the Fed from hiking at the upcoming meeting.