Dollar gains on rate hike expectations, yen retreats past 160

In his debut speech at the Jackson Hole symposium of central bankers, Warsh said the Fed will "have work to do" should inflation not appear to be cooling, but many on Wall Street remained unclear about how the U.S. central bank will react to economic changes in the months ahead. Traders are pricing in a 65% chance of a Fed hike later this month, compared with 41% a week earlier, the CME FedWatch tool showed. "He wants to stamp the view that the Fed will deliver on its inflation mandate. However, in our view, it does not necessarily translate into a hiking cycle. Fed is going to be data dependent, and we expect the coming months inflation prints to remain benign," Jefferies chief European economist Mohit Kumar said in a note. A raft of U.S. economic data this week, culminating in Friday's nonfarm payrolls report, could further shape expectations for the Fed's policy path. In other currencies, the Australian dollar was at $0.7152, while the New Zealand dollar fetched $0.5900 after both currencies hit multi-month highs. U.S. Treasury Secretary Scott Bessent said he believed Japan's government and central bank would take action that leads to a stronger yen. While the BOJ was already widely expected to lift rates in September, Bessent's comments effectively lock the bank into doing so and put pressure on it to step up hikes going forward. Yet neither the jump in yields nor Bessent's comments were enough to arrest the yen's decline. The currency traded at 159.99 per dollar after breaching 160 for the third straight session, a level widely viewed as increasing the risk of intervention by Japanese authorities. "Investors remain focused on Japan’s still-unfavorable rate differential with the United States and doubts over how aggressively the Bank of Japan will tighten policy," said Joel Kruger, market strategist at LMAX Group in London. "Markets appear unconvinced that verbal pressure alone will reverse the yen's weakness, leaving the currency vulnerable unless the BoJ delivers a clearly more hawkish signal or authorities intervene directly." A rare joint intervention from the U.S. and Japan at the end of July provided short-lived relief for the fragile yen, yanking it away from the 40-year lows of 163.99, but the currency has since surrendered most of the gains from the joint action. Japanese Finance Minister Satsuki Katayama said she met with Bessent and agreed that orderly yen movements are critical for global market stability. Beyond the yen, the dollar remained broadly supported as traders raised bets on a hike from the Federal Reserve in September after last week's hawkish remarks from Fed Chairman Kevin Warsh. The euro was 0.2% softer at $1.1589 ahead of the euro zone inflation report after rising over 1% in August. Sterling last fetched $1.3532 after a 0.5% rise last month. The dollar index, which measures the U.S. currency against six other units, was 0.2% higher at 99.623. The dollar strengthened on Tuesday as renewed Gulf attacks sparked a global bond selloff and stoked inflation worries, while the yen slid past 160 per dollar again even as pressure mounted on the Bank of Japan to raise rates. U.S. President Donald Trump threatened further strikes against Iran after the first exchange of direct attacks in a month, pushing Brent crude futures above $91 a barrel, fuelling inflation worries and spurring a bond selloff. The yield on 10-year Treasury notes hit its highest since January 2025 while the 10-year Japanese government bond yield touched 3% for the first time in 30 years.

Dollar gains on rate hike expectations, yen retreats past 160

Warsh comments and market pricing

Bessent comments add pressure on the Bank of Japan

Dollar supported by Fed hike bets and upcoming data

Dollar firms as bond selloff and inflation worries build

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