The Dollar edged lower on Monday but remained close to a two-week high, as markets increased their expectations for a rate hike following hawkish comments from Federal Reserve Chair Kevin Warsh and renewed tensions in the Gulf.
Warsh said on Friday that the Federal Reserve would “have work to do” if policymakers lacked sufficient confidence that inflation was moving towards the 2% target. His remarks represented his strongest signal yet that further monetary tightening could be needed to bring price pressures under control.
The remarks strengthened expectations of a September rate hike, with markets now pricing in a 58% probability of a move next month. Meanwhile, yields on the interest-rate-sensitive two-year US Treasury note remained just below a more than one-month high.
Investors are now shifting their attention to key US economic data, particularly Friday’s nonfarm payrolls report and next week’s consumer inflation figures, which could influence expectations ahead of the Federal Reserve’s September meeting, Reuters reports.
The Euro gained around 0.11% to $1.1597, while Sterling edged up to $1.3543. Both currencies remained on track to record their second consecutive monthly gains.
The Dollar index, which tracks the US currency against six major peers, fell 0.11% to 99.53 after climbing to 99.73 on Friday, its highest level since 17th August.
Despite the recent rebound, the index remained on course for a second consecutive monthly decline, as US Treasury plans to buy back bonds earlier this month revived concerns over potential Dollar debasement.
Elsewhere, the Yen’s continued weakness remains in focus, with renewed Dollar strength putting more pressure on the Japanese currency after it gave back much of the gains made following July’s intervention.
The Yen recovered around 0.3% to 159.57 per Dollar after falling beyond the closely watched 160 level on Friday. The breach has heightened concerns about the risk of further official intervention and renewed speculation over whether Tokyo and Washington could step in again to support the currency.
US Treasury Secretary Scott Bessent said on Sunday that recent movements in the Yen had been “fairly well contained” and expressed confidence that Bank of Japan Governor Kazuo Ueda would take the appropriate approach to monetary policy.
Furthermore, China’s Yuan strengthened to around 6.72 per Dollar after data showed that the country’s factory activity improved in August, although it remained in contraction territory.