The dollar dropped to its lowest level since May after Fed Governor Christopher Waller pointed to progress on inflation and signaled the central bank could hold rates steady in September. The yen surged against its major counterparts on the remarks, while a split with Fed Chair Kevin Warsh added uncertainty heading into the meeting.
The dollar dropped to levels not seen since May after Federal Reserve Governor Christopher Waller pointed to meaningful progress on inflation, hinting the central bank might hold rates steady at its mid-September meeting. The yen surged against its major counterparts at the same time, rattling currency markets on September 3.
Waller's comments carried particular weight because they diverge from the more hawkish posture Fed Chair Kevin Warsh has recently adopted.
Cooling inflation drives Waller's shift
Three-month core inflation, as measured by the Personal Consumption Expenditures index, declined from 4.76% in February to 3.05% in July. That's still above the Fed's 2% target, but the trajectory is moving in the right direction.
Year-over-year core PCE came in at 3.3% for July, and both headline and core PCE rose just 0.2% that month, suggesting price momentum is losing steam. Waller framed his position as data-dependent, saying policymakers should "give disinflation a chance". His readiness to back a steady policy rate hinges on August inflation data coming in favorably.
Yen surges as dollar weakness runs deeper than one speech
The greenback has been under pressure for much of 2026, weighed down by tariff-related uncertainty, fiscal concerns, and shifting expectations about the Fed's policy trajectory. The yen's surge reflects the interest rate differential between the Bank of Japan and the Fed, and any narrowing of that gap gives the yen room to recover.
A split Fed heads into September
Waller's patience contrasts with Warsh's more hawkish stance, adding uncertainty ahead of the September meeting. The August inflation print is the key variable: if it confirms disinflation is continuing, the case for holding rates steady becomes nearly airtight. If the data surprises to the upside, Warsh's posture could carry the day instead.
Fiscal concerns over US debt levels add another dimension to the dollar's vulnerability. Even if inflation cooperates and the Fed holds steady, structural worries about government spending could keep the greenback under pressure beyond a single FOMC meeting cycle.
Source: Crypto Briefing
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