Warsh signals potential rate hike at Jackson Hole
The US dollar was stronger on Friday after a key speech from Federal Reserve Chair Kevin Warsh led markets to speculate about a potential US rate hike next month.
Speaking at the Jackson Hole symposium, Warsh focused on the importance of returning inflation to the Fed’s 2% target and warned the central bank will have more “work to do” if progress stalls – code for further rate hikes. Warsh also argued that financial conditions are not currently restrictive in a sign that multiple rate hikes might be required.
According to Bloomberg, Warsh’s comments triggered the biggest post-Jackson Hole rise in bond yields in 20 years.
While Warsh stopped short of signalling support for a September rate hike, his comments helped underpin US dollar demand.
Across FX, moves in the Australian dollar were the most significant, with AUD/USD reversing sharply after failing to sustain a break above the 0.7200 resistance level. The AUD/USD fell 0.4%.
The NZD/USD lost 0.6%. USD/SGD and USD/CNH gained 0.2%.
Yen weakness persists as USD/JPY nears 160
With the Fed reiterating a hawkish tone, describing policy as not restrictive, inflation as still above target and calling for action on prices, while oil jolted risk sentiment overnight amid the stalled Iran deal, firmer Tokyo inflation nudged the BoJ closer to its own target.
Tokyo core prices rose 1.8% y/y in August, above the expected 1.7% and edging nearer the BoJ’s 2% goal. Excluding fresh food and fuel, the pace quickened to 2.0% from 1.8%, pointing to firmer underlying inflationary pressure. Elevated wholesale inflation, up 7.2% in July, should feed through with a lag, and this early reading arrives just ahead of the BoJ’s 17-18 September meeting.
USD/JPY is at a one-week high and trading near the key 160.00 level. The pair remains roughly 3% below its 23 July peak of 163.99, with the 100-day EMA at 159.68 and the 50-day EMA at 160.03 serving as near-term resistance levels to watch.
Meanwhile, AUD/JPY is at a three-month high, while SGD/JPY is at a one-month high, underscoring relative JPY weakness.
RBNZ, US jobs in focus this week
The week opens with a heavy focus on factory activity. China’s official Manufacturing and Non-manufacturing PMIs are due Monday, both remaining in contraction territory, followed by the RatingDog manufacturing gauge on Tuesday. Japan’s industrial production (Monday) and S&P Manufacturing PMI (Tuesday) round out the regional picture, offering an early steer on Asian momentum into month-end.
Price data feature throughout the week, with German flash CPI on Monday and Eurozone flash CPI on Tuesday framing the European backdrop. Growth takes centre stage on Wednesday as Australia releases Q2 GDP, both quarterly and annual, a pivotal print for the Australian dollar. US ISM Manufacturing on the same day provides a further gauge of global demand conditions.
Wednesday delivers the week’s marquee events, with the Reserve Bank of New Zealand and the Bank of Canada both announcing rate decisions. Any surprise on either front could drive sharp moves in the New Zealand and Canadian dollars, with spillover into broader risk sentiment.
The week culminates on Friday with US non-farm payrolls, unemployment and average hourly earnings.
Aussie reverses after Jackson Hole speech
Table: seven-day rolling currency trends and trading ranges
Key global risk events
Calendar: 31 August to 4 September
Have a question? [email protected]
*The FX rates published are provided by Convera’s Market Insights team for research purposes only. The rates have a unique source and may not align to any live exchange rates quoted on other sites. They are not an indication of actual buy/sell rates, or a financial offer.
