Euro slides below 1.1600 as Warsh brings Fed rate hike back into play

• EUR/USD tumbles toward 1.1595 as Kevin Warsh’s hawkish-leaning Jackson Hole remarks boost the US Dollar.
• Markets now price in around a 57% chance of a September Fed rate hike, sharply up from 36% before Warsh’s speech.
• Warsh puts price stability firmly in focus, arguing that financial conditions are hardly restrictive and underlying inflation has yet to meaningfully improve.

EUR/USD falls sharply toward 1.1595 on Friday at the time of writing, losing 0.48% on the day, as the US Dollar (USD) rallies following Federal Reserve (Fed) Chair Kevin Warsh’s speech at the Jackson Hole Symposium. Warsh stresses that the central bank’s predominant focus should currently be on price stability, prompting markets to increase bets on a September interest-rate hike.

Warsh says the Fed needs to be confident that underlying inflation is moving toward its objective, adding that policymakers “have work to do” otherwise. The Fed Chair also says he would be “hard-pressed” to describe current financial conditions as restrictive, while noting that credit and loan markets show few signs of monetary policy restraint.

The comments reinforce the view that the Fed could maintain a restrictive stance as it seeks to bring inflation sustainably back to target. Warsh says that this summer’s inflation figures have been better than expected but have not convinced him that underlying inflation trends have meaningfully changed. He reiterates that the Fed’s 2% Personal Consumption Expenditures (PCE) inflation target is “firm and fixed.”

Warsh also strikes an upbeat tone on economic activity, saying that he is impressed by the overall performance of the United States (US) economy, which appears to have strengthened. He describes consumer spending as healthy and the labor market as stable, while highlighting rapidly rising business investment.

The hawkish-leaning remarks trigger a repricing of Fed expectations. According to the CME FedWatch Tool, markets now assign around a 57% chance to an interest-rate hike at the September meeting, up from roughly 36% before Warsh’s speech. The sharp repricing puts a September rate hike firmly back on the table, reinforcing the US Dollar’s bullish reaction.

The shift supports the Greenback, with the US Dollar Index (DXY), which tracks the value of the US Dollar against a basket of six major currencies, rising 0.44% to around 99.55 at the time of press.

Meanwhile, US data released on Friday provide a mixed picture. The preliminary Nonfarm Payrolls (NFP) Benchmark Revision from the Bureau of Labor Statistics (BLS) shows a downward revision of 79K jobs, or 0.1%, to total nonfarm employment for the twelve months through March. The relatively modest adjustment does not materially alter the overall picture of the US labor market over the period and may offer some reassurance to investors who had feared a larger downgrade, particularly after last year’s much steeper downward revision of 911K jobs.

The University of Michigan Consumer Sentiment Index for August is revised higher to 51.7 from the preliminary estimate of 51, although it remains below July’s 55.2. The Expectations Index is also revised upward to 51.5 from 50.6 but declines from 55.4 in July.

On the inflation front, the University of Michigan’s one-year Consumer Inflation Expectations ease to 4% from 4.3%, while the five-year measure remains unchanged at 3.3%. The moderation in short-term expectations offers some relief on the inflation front but does little to offset the US Dollar’s positive reaction to Warsh’s emphasis on price stability.

EUR/USD technical analysis

In the one-hour chart, EUR/USD trades at 1.1605, extending a bearish bias as the pair holds beneath the 100-hour simple moving average (SMA) at 1.1658 and the 200-hour SMA at 1.1655, keeping the recent downtrend intact. The break below the descending channel reference at 1.1629 reinforces overhead pressure, while the Relative Strength Index (RSI) around 24 shows oversold momentum that hints at the risk of corrective bounces but not yet a change in the broader bearish tone.

On the topside, initial resistance aligns near 1.1614, ahead of the former trend-line at 1.1629, followed by a thicker supply zone between the 200-hour SMA at 1.1655 and the 100-hour SMA at 1.1658, ; a sustained move above these levels would be needed to ease immediate downside pressure. On the downside, next support emerges at 1.1585, with a break there exposing the lower horizontal floor at 1.1565, where sellers could pause before contemplating further declines.

(The technical analysis of this story was written with the help of an AI tool. Know more.)