US Dollar Firms on Rate Hike Expectations as Fed Chair Warsh Speech Draws Muted FX Reaction

The US dollar gained ground on Tuesday, September 1, driven by rising rate hike expectations, though the currency's advance remained relatively contained following Federal Reserve Chairman Kevin Warsh's speech on Friday. The US Dollar Index has been notably range-bound for most of the year, with its biggest monthly swing barely exceeding 2% across July and August combined.

The euro came under pressure against the dollar, with UOB analysts noting that any rebound in EUR/USD was being capped by nearby resistance levels. Sterling also slipped despite a jump in gilt yields, as investors continued to favor the dollar. The yen retreated past the 160 level against the dollar amid the broader rate hike narrative.

The Indian rupee bucked the trend, surging to a two-month high against the dollar on the back of aggressive Reserve Bank of India intervention and dollar-selling flows from foreign banks. Meanwhile, the dollar's rebound put a bearish technical pattern, known as a bear pennant, in focus for gold markets. Separately, Bundesbank President Nagel confirmed at the G20 that the potential use of the euro in US and Japanese currency interventions had been discussed, a disclosure that adds a geopolitical dimension to the currency moves.