Investing.com – The U.S. dollar extended its supremacy across foreign exchange desks on Tuesday, hovering near two-week highs as a global sovereign debt rout pushed benchmark yields to multi-year peaks, cementing market expectations that the Federal Reserve will resume monetary tightening in September.
edged up 0.16%, maintaining its recent momentum. The greenback’s resilience reflects a dramatic re-pricing of short-term U.S. interest rate paths following Federal Reserve Chair Kevin Warsh’s hawkish keynote at Jackson Hole, which sent the up 3 basis points to 4.80% – its highest level since January 2025.
Money market swaps now imply roughly a 74% probability of a 25-basis-point Fed rate increase at the Sept. 17 policy gathering, a sharp acceleration from 34% prior to Warsh’s address, leaving lower-yielding peer currencies vulnerable to widening interest rate differentials.
Euro slips as energy-driven headline inflation mask softer core CPI
The euro dropped 0.20% to , trading on the back foot as currency desks parsed preliminary Eurostat metrics showing a stark split in Eurozone inflation dynamics:
Eurozone headline Consumer Price Index (CPI) accelerated to 3.3% year-on-year in August – up sharply from 2.9% in July. However, underlying core CPI – which excludes volatile energy, food, alcohol, and tobacco – eased unexpectedly to 2.4% year-on-year from 2.5%, while services inflation slowed to 3%.
The divergence in European price metrics complicates the picture for the European Central Bank (ECB) ahead of its Sept.
Yen creeps up near 160 threshold as Bessent pushes BOJ for hikes
The Japanese yen inched up 0.10% to , remaining pinned just below the psychologically critical 160 threshold – a level that previously triggered historic joint currency interventions by Tokyo and Washington.
The yen drew brief support from remarks by U.S. Treasury Secretary Scott Bessent during the G20 finance leaders’ gathering in Asheville, North Carolina.
In a rare direct public intervention regarding foreign monetary policy, Bessent openly urged Bank of Japan Governor Kazuo Ueda to raise interest rates, signaling the end of Abenomics and noting he possesses “information that the market doesn’t have” regarding Japanese stabilization efforts.
Swap markets responded by lifting the probability of a BOJ rate hike at its Sept. 17–18 meeting to nearly 88%. The hawkish expectations pushed the up 5 basis points to a landmark 3.000% – its highest level in three decades.
However, analysts caution that without explicit BOJ execution, the yen will remain under pressure as long as U.S. yields continue to march higher.
With global bond markets experiencing acute duration volatility and crude oil holding near $91.10 a barrel following direct U.S.-Iran military engagements, foreign exchange desks are braced for incoming U.S. data releases to dictate the dollar’s next directional leg.
The July U.S. JOLTS job openings report due later Tuesday, followed by ADP private payrolls on Wednesday and August Nonfarm Payrolls (NFP) on Friday, will provide definitive evidence on labor market tightness.
Next week’s U.S. August CPI print will serve as the final crucible before the Fed’s Sept. 17 rate decision, with traders warning that a hotter-than-expected inflation readout could push September hike odds toward 100% and extend the dollar’s multi-week rally.
(Roushni Nair contributed reporting)