The U.S. dollar consolidated gains from the prior week after Federal Reserve Chair Warsh delivered hawkish commentary at the Jackson Hole symposium. The greenback’s advance follows a similar surge in mid-June following a hawkish hold at an FOMC meeting chaired by Warsh. While markets are not fully discounting a September 16 rate decision, the dollar’s strength has weighed on major peers.
European inflation data released Monday underscored expectations for an European Central Bank hike next month, with Spain’s harmonized CPI rising 4.6% year-over-year in August, the highest since February 2023. France’s harmonized measure increased to 2.7% from 2.4%, while Germany’s national CPI is expected to exceed 3% for the first time since January 2024. Swaps pricing reflects nearly full certainty of an ECB hike in September and around a 70% chance of another increase in the fourth quarter.
In Japan, firmer rates failed to support the yen, which fell every session last week—the first such streak in three months. The dollar rose back above ¥160 for the first time since late July’s intervention, reaching a pre-weekend high of ¥160.20 before easing slightly to ¥159.50. Options totaling $780 million at ¥159.65 expire Monday, while the ¥160.60 level aligns with the 61.8% retracement of the dollar’s post-intervention losses. The July 31 high was nearly ¥160.90.
The euro held above Friday’s low near $1.1605, briefly poking above the level as it consolidated around the 38.2% retracement of last week’s losses. Options for €2.2 billion at $1.1600 expire Monday, but the analysis maintains a bearish outlook with a next technical target around $1.1530. The Australian dollar slipped below $0.7165 after briefly trading above $0.7200, with momentum indicators turning lower. The Aussie is consolidating between $0.7155 and $0.7170, with downside targets of $0.7100 and possibly $0.7065 in the near term.
In commodity-linked currencies, the Canadian dollar rose to C$1.3910 as the greenback extended gains, forming a bullish pattern. Follow-through buying was limited, with support holding near C$1.3890. A move above C$1.3930 could spur a push toward C$1.4000. The Mexican peso strengthened to MXN17.0645, its best level in seven sessions, before consolidating above MXN17.00. Additional gains toward MXN17.13-MXN17.15 are possible, according to the analysis.
Oil prices rose by around $3 a barrel Monday following escalations in the Middle East. October Brent crude traded near $86.65, extending gains after settling below the middle of its two-week range over the weekend. U.S. 10-year Treasury yields rose 2-3 basis points in Europe, with the benchmark near 4.71%, while the 30-year yield held above a 5.15% floor. European benchmark yields were 2-4 basis points higher, with UK Gilts nearly flat.
U.S. equities ended lower ahead of the weekend despite rising yields, with futures modestly weaker in early trading. Asia-Pacific equities were mixed, while Europe’s Stoxx 600 posted small losses. Precious metals came under pressure, with gold dipping below $2,400 after peaking near $2,470 earlier in the month. Silver fell to a weekly low below $65.60 before recovering to $67, with technical risk extending toward $62.
