U.S. dollar holds steady near two-week high

The dollar index ​ticked down slightly to 99.6 after jumping 0.6% on Friday to its strongest level since August 17

The U.S. dollar held steady near a two-week high on Monday as markets ramped up bets on a rate ​hike after hawkish remarks by central bank Chair Kevin Warsh.

The central bank will “have work to do” if policymakers don’t get the confidence they need that inflation is heading down to 2%, central bank Chairman Kevin Warsh said on Friday, in his clearest indication yet that further tightening may be needed to curb price pressure.

The comments fuelled bets on a September ​rate hike. Markets raised the implied probability of a move next month to 57%, while yields on interest-rate-sensitive two-year U.S. Treasury ​notes rose to a more than one-month high of 4.33%.

Warsh’s defence of the inflation target has reduced ⁠a major drag on the U.S. dollar and shifted the focus back to economic fundamentals, said OCBC’s FX strategist Sim Moh Siong, ​adding that it helped rebuild the Fed’s credibility and eased concerns about currency debasement.

Investors are now turning their focus to incoming U.S. data, particularly Friday’s ​nonfarm payrolls report and next week’s consumer inflation figures, both of which could shape expectations ahead of the September central bank meeting.

The dollar index ​ticked down slightly to 99.6 after jumping 0.6% on Friday to its strongest level since August 17.

Even so, the index was still ​on track for a second consecutive monthly decline, as U.S. Treasury bond-buyback plans earlier in the month revived debasement trades.

Dollar demand was also supported by higher oil ‌prices on ⁠Monday. Brent oil added almost 2% after Iran and U.S. struck each other on Sunday, which marks the first known strikes between the two countries since late July.