US Dollar Index rallies as Warsh puts September rate hike back on the table

• The US Dollar strengthens after Kevin Warsh emphasizes the need to restore price stability during his Jackson Hole speech.
• Markets raise the chance of a September interest-rate hike to around 56%, compared with roughly 36% before Warsh’s remarks.
• US economic data offer a mixed picture, with a modest downward payroll revision and easing short-term consumer inflation expectations.

US Dollar Index (DXY) rallies on Friday, gaining 0.36% to trade around 99.50 at the time of writing, as Federal Reserve (Fed) Chair Kevin Warsh’s hawkish remarks at the Jackson Hole Symposium prompt investors to sharply reassess the outlook for US interest rates.

The US Dollar (USD) gains ground after Warsh stresses that price stability should remain the central bank’s predominant focus. The Fed Chair says policymakers need to be confident that underlying inflation is moving toward the central bank’s objective and warns that they still “have work to do” if this is not the case.

On inflation, Warsh acknowledges that data released during the summer have been better than expected but says they are not sufficient to demonstrate a meaningful shift in underlying price dynamics. He reiterates that the Fed’s 2% Personal Consumption Expenditures (PCE) inflation target remains “firm and fixed.”

At the same time, the Fed Chair offers an upbeat assessment of the United States (US) economy. Warsh says economic activity appears to have strengthened, describing consumer spending as healthy and the labor market as stable, while pointing to rapidly increasing business investment.

The combination of resilient economic activity and persistent inflation concerns triggers a significant repricing of monetary policy expectations. According to the CME FedWatch Tool, markets now assign around a 56% chance to an interest-rate hike at the Fed’s September meeting, up from roughly 36% before Warsh’s speech. The shift provides fresh support to the US Dollar and helps the DXY advance toward 99.50.

Meanwhile, US economic releases on Friday provide a more mixed backdrop. The preliminary Nonfarm Payrolls (NFP) Benchmark Revision from the Bureau of Labor Statistics (BLS) shows a downward adjustment of 79K jobs, or 0.1%, to total nonfarm employment for the twelve months through March. The relatively limited revision may ease concerns about a more substantial deterioration in the labor market after last year’s much larger downward adjustment of 911K jobs.

Consumer data also send mixed signals. The University of Michigan Consumer Sentiment Index for August is revised higher to 51.7 from the preliminary reading of 51, although it remains below July’s 55.2. The Expectations Index rises to 51.5 from the initial estimate of 50.6 but also remains weaker than July’s 55.4.

On the inflation front, the University of Michigan’s one-year Consumer Inflation Expectations decline to 4% from 4.3%, while the five-year measure remains unchanged at 3.3%. The moderation in near-term inflation expectations provides some reassurance, but it fails to overshadow Warsh’s emphasis on price stability and the resulting increase in expectations for a September rate hike, leaving the US Dollar firmly supported on Friday.

US Dollar Index technical analysis

In the one-hour chart, US Dollar Index Spot trades at 99.47. Price holds in a bullish configuration, pressing above both the 100-hour and 200-hour simple moving averages (SMAs), which slope gently higher and underpin the broader uptrend. The latest push has also respected the rising trend-line support, keeping the immediate tone constructive, while the Relative Strength Index (RSI) around 75 signals overbought conditions that could slow the pace of gains rather than reverse the trend outright.

On the topside, initial resistance is located at the horizontal barrier near 99.70, where a pause or pullback would not be surprising given stretched intraday momentum. On the downside, the rising trend-line around 99.16 acts as a nearby pivot, followed by firmer support at 99.26, with the 100-hour SMA at 99.08 and the 200-hour SMA at 99.06 reinforcing a broader demand band on dips.

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