4 days ago
Dollar Jumps After Warsh Comments, Set for Weekly Gain
The U.S. dollar became more valuable after Kevin Warsh discussed the possibility of higher interest rates.
He said the Federal Reserve may need to do more if inflation does not move back toward its 2% goal.
Higher interest rates can make a country's currency more attractive to investors.
Because of Warsh's comments, traders increased their expectations for a September rate hike.
The chance of a hike of at least 0.25 percentage points rose to 57.5%.
The dollar gained against several currencies, including the euro, yen, and Canadian dollar.
It was on track for its biggest weekly gain in 10 weeks.
One market analyst warned that traders may be skeptical if the Federal Reserve does not act after making similar comments.
Canada's currency also weakened amid new tariffs and failed trade talks with the United States.
The U.S. dollar rose 0.59% on Friday to 99.69 on the dollar index.
Federal Reserve Chair Kevin Warsh said policymakers may need to raise rates if inflation is not returning toward 2%.
Markets raised the probability of at least a 25-basis-point September rate hike to 57.5%, from about 35%.
The dollar was up nearly 0.9% for the week, its strongest weekly performance in 10 weeks.
The Canadian dollar fell as U.S.-Canada trade tensions and newly announced tariffs added uncertainty.
- Who
- Federal Reserve Chair Kevin Warsh, U.S. policymakers, currency traders, and major currencies including the euro, yen, sterling, and Canadian dollar.
- What
- The U.S. dollar jumped after Warsh suggested that interest-rate increases may be needed if inflation remains above target.
- Where
- In currency markets, with Warsh speaking at the Jackson Hole symposium and trading activity reported from New York.
- When
- Friday, following Warsh's debut speech at the Jackson Hole symposium.
- Why
- Investors interpreted Warsh's comments as increasing the possibility of a September rate hike to address persistent inflation.
Hawkish Interpretation
Skeptical Interpretation
Meaning of Warsh's comments
Hawkish Interpretation
Warsh's statement that the Federal Reserve may have more work to do was interpreted as a signal that rate hikes could be necessary if inflation remains elevated.
Skeptical Interpretation
Moneycorp's Eugene Epstein said the remarks were similar to Warsh's earlier comments and did not appear substantive.
Federal Reserve credibility
Hawkish Interpretation
Following through with a rate hike could reinforce the Federal Reserve's response to stubborn inflation.
Skeptical Interpretation
Epstein warned that markets may view Warsh's future comments skeptically if the Federal Reserve again does not act.
September rate decision
Hawkish Interpretation
Markets increased the probability of at least a 25-basis-point September hike to 57.5%.
Skeptical Interpretation
The probability increase reflected market expectations, not a confirmed Federal Reserve decision.
Key facts
- Dollar index
- Rose 0.59% to 99.69, after reaching 99.727.
- Weekly dollar performance
- Up nearly 0.9%, on track for its biggest weekly gain in 10 weeks.
- September rate-hike odds
- Expectations for at least a 25-basis-point hike rose to 57.5%, from about 35%.
- Federal Reserve inflation target
- Warsh referred to the central bank's 2% inflation target.
- Euro
- Fell 0.59% to $1.1582 and was down about 0.8% for the week.
- Japanese yen
- The dollar rose 0.48% against the yen to 160.15.
- Canadian dollar
- Fell 0.37% to C$1.39 per U.S. dollar and was down about 1% for the week.
Quotes
Eugene Epstein
Head of trading and structured products at Moneycorp in Stamford, Connecticut
“If the Fed doesn't follow through again, I don't want to be dramatic and say that credibility is getting eroded, but I think a better way to phrase it is that the market's going to be looking at his commentary going forward with a giant grain of salt.”
livemint.com
“At least for the time being, we're getting more of the same Warsh-speak that we saw prior to any of the Fed decisions that he had been a part of. Meaning he's saying a lot, but none of this seems really substantive.”
livemint.com
Sources
Related news
Dollar slips as traders weigh Fed hike odds, jobs data
Sticky US inflation lifts dollar, revives Fed hike bets
Dollar Steady as Markets Await Warsh’s Jackson Hole Speech
Warsh Hawkish Tone Sends Markets Betting on Fed Rate Hikes
Dollar Rebounds as PCE Inflation Revives Federal Reserve Hike Bets
Warsh Signals Possible Rate Hikes as Inflation Stays Above Target
Japan Cricket Boss Defends Asian Games Facilities Against Concerns
Mitsubishi Revives Pajero With 201PS Fifth-Generation SUV
Europe's Bond Selloff Deepens as Middle East Tensions Lift Oil
Uday Kotak Warns Global Bond Markets Face Roller-Coaster Volatility
Global Bond Sell-Off Pushes Japan Yields To 30-Year High
