Warsh's Hawkish Pivot Sends Dollar Surging Ahead of Fed's September Decision

Market Wrap-up: Dollar and Yields Jump as Warsh Turns Hawkish; Gold Slides Nearly 3%

The USD strengthened sharply by more than 0.60%, climbing to 99.72 points, while the 10-year US Treasury yield surged 5.5 basis points to 4.728%, following a speech by Fed Chair Kevin Warsh at the Jackson Hole symposium.

In a speech closely watched by markets, Warsh delivered a more hawkish assessment of monetary policy compared to July 2026. He argued that elevated prices should be the Fed's primary focus, and noted that financial conditions are currently not particularly tight on a broad basis, a shift from his July press conference, when he had described conditions as uneven.

Meanwhile, President Donald Trump, who has repeatedly expressed a desire for lower interest rates, was the one who selected Warsh for the position of Fed Chair. Although Warsh made no mention of Trump at Jackson Hole, his assessment of the economy and his concerns over elevated prices placed his views in clear contrast with the President's.

Warsh's performance at Jackson Hole gave his Fed colleagues further reason to back him should he decide to raise interest rates in September 2026. The speech at this highly influential forum may also help dispel the notion that he has been steering monetary policy without a clear direction.

According to the CME's FedWatch tool, markets are now pricing a 62% probability of a Fed rate hike in September, sharply higher than the 36% seen before Warsh's speech.

This has provided support for the USD, sending other major currencies such as the Euro, British Pound and Japanese Yen lower across the board. USD/JPY briefly touched the psychological 160.00 level, its highest in around a month, while EUR/USD slipped to the 1.15800 region, a near two-week low first formed on 18 August.

The dollar's strong rally also drove spot gold down nearly 3% to $4,567.23 per ounce. This followed a rise to $4,696.18 per ounce last Tuesday, after the US Treasury announced measures the previous week to support the long-end bond market.

Looking ahead for this week, markets will be watching for key new data including the ISM Manufacturing PMI, ISM Services PMI and the Fed Beige Book, as well as, in particular, labour market data such as ADP Employment Change, JOLTs Job Openings, the Unemployment Rate and Non-Farm Payrolls.

DXY:

Key takeaway:

• USD surged over 0.60% to 99.72 after Fed Chair Kevin Warsh delivered a hawkish Jackson Hole speech, prioritising inflation control and describing financial conditions as not broadly tight.
• CME FedWatch probability of a September rate hike jumped to 62% from 36% pre-speech, while 10-year Treasury yields spiked 5.5bps to 4.728%.
• Warsh's stance appears to contrast with President Trump's preference for lower rates, despite Trump having appointed him, reinforcing perceptions of Fed independence ahead of the September decision.

Technical Outlook:

• Daily Bias: Bullish
• Support: 99.26  
• Resistance: 99.72  

Gold:

Key takeaway:

• Spot gold tumbled nearly 3% to $4,567.23/oz as dollar strength and rising hawkish rate-hike odds pressured the metal.
• This reverses a rally to $4,696.18/oz last Tuesday, which had been driven by US Treasury measures supporting the long-end bond market.

Technical Outlook:

• Daily Bias: Bearish
• Support: 4,396  
• Resistance: 4,564

USD/JPY:

Key takeaway:

• USD/JPY spiked toward the psychological 160.00 level, a fresh one-month high, driven by broad USD strength.
• BoJ hiked its policy rate to 1.00% in June (a 31-year high), and markets are now pricing an 80% probability of a further BoJ hike in September, a factor that could cap further JPY weakness.

Technical Outlook:

• Daily Bias: Bullish
• Support: 159.40
• Resistance: 160.20

Calendar Watch:

• ISM Manufacturing PMI
• ISM Services PMI
• Fed Beige Book
• ADP Employment Change
• JOLTs Job Openings
• Unemployment Rate
• Non-Farm Payrolls

These labour market and activity releases will be critical in confirming or challenging the market's repriced expectations for a September Fed rate hike.

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