The euro dropped against the dollar on Friday after Federal Reserve Chair Kevin Warsh used his debut Jackson Hole speech to signal the central bank may not be done raising rates. Traders pushed up the odds of a September hike, and the dollar index climbed toward a one-week high.
EUR/USD fell 0.46% to $1.1597 on Friday after Federal Reserve Chair Kevin Warsh's debut Jackson Hole speech raised concern that inflation isn't cooling fast enough toward the Fed's 2% target. According to Reuters, the remarks marked the closest Warsh has come to acknowledging that further rate hikes may be needed, as he told the symposium the Fed will "have work to do".
Warsh, in his first address as Fed chair, said financial conditions do not look restrictive enough, a point investing.com reports he tied to strong consumer spending, robust credit markets and heavy investment linked to artificial intelligence. He stopped short of committing to a move at the Fed's next meeting, favoring a data-dependent approach over explicit guidance.
Rate hike odds jump
Markets reacted fast. Expectations for at least a 25-basis-point hike in September jumped to about 50%, up from roughly 35% before the speech. The dollar index rose 0.46% to 99.57, touching a session high of 99.592 and putting it on track for a weekly gain.
Against the yen, the dollar strengthened 0.32% to 159.9, while sterling weakened 0.45% to $1.3533. Even so, investing.com described the dollar's reaction as restrained, with markets already positioned for a relatively hawkish message from the new Fed chair.
Focus shifts to incoming data
The focus now turns to incoming U.S. inflation and economic data that could confirm Warsh's warning that recent price moderation may not yet represent a durable disinflation trend, according to investing.com. Longer-dated Treasury yields and the dollar remain the key indicators traders are watching for signs of a shift in the monetary policy outlook.
Sources: Reuters via Yahoo Finance, Investing.com
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