Key facts
- The dollar held near a two-week high as markets increased bets on a Federal Reserve rate hike.
- Federal Reserve Chair Kevin Warsh indicated further tightening may be necessary if inflation does not move towards the 2% target.
- The implied probability of a September Fed rate hike rose to 57%.
- Two-year U.S. Treasury note yields climbed to a more than one-month high of 4.33%.
- The yen weakened, trading near the 160-per-dollar level.
- U.S. forces conducted strikes on Iran's Larak Island, leading to a nearly 2% rise in Brent oil prices.
The dollar held near a two-week high on Monday, driven by increased market bets on a Federal Reserve rate hike following hawkish remarks from Fed Chair Kevin Warsh. Warsh stated that the U.S. central bank would 'have work to do' if policymakers lack confidence that inflation is moving towards the 2% target, fueling expectations for further tightening. These comments raised the implied probability of a September rate hike to 57%, and yields on two-year U.S. Treasury notes climbed to a more than one-month high of 4.33%. Analysts noted that Warsh's defense of the inflation target has reduced pressure on the dollar and bolstered the Fed's credibility. Investors are now focused on upcoming U.S. economic data, including Friday's nonfarm payrolls report and next week's consumer inflation figures, which could influence expectations ahead of the Fed's September meeting. The dollar index, which tracks the U.S. currency against six major peers, saw a slight dip to 99.6 after a significant jump on Friday. Separately, Brent crude oil prices rose nearly 2% following U.S. strikes on Iran's Larak Island. The Japanese yen also weakened, trading near the 160-per-dollar level, a threshold that could prompt official intervention. U.S. Treasury Secretary Scott Bessent commented that recent yen movements had been 'pretty well contained' and expressed confidence in Bank of Japan Governor Kazuo Ueda's policy decisions. Experts suggest that currency interventions are typically only effective when supported by fundamental economic shifts.