28.08.202614:45:33UTC+00Euro Slips as Hawkish Fed Tone Supports Dollar

The euro slipped to around $1.16, its weakest level since August 19, as investors rotated into the US dollar following hawkish comments from Federal Reserve Chair Kevin Warsh, despite fresh European data signaling renewed inflationary pressures. In his first major address since taking office in May, Warsh reaffirmed that the Fed’s 2% inflation target is “firm and fixed,” emphasized that financial conditions are not currently restrictive, and underscored that interest rates remain the central bank’s “predominant tool.”

At the same time, inflation figures from France and Spain reinforced expectations of further tightening by the European Central Bank. EU-harmonized inflation climbed to 2.7% in France and 4.5% in Spain, the latter marking its highest level since 2023. Money markets now anticipate the ECB’s deposit rate will rise to 2.80% by March from 2.25% at present, and assign roughly a 60% probability to an increase to 3%. Recent ECB minutes and Reuters reporting have also highlighted the possibility of a September rate hike, although policymakers remain hesitant to clearly signal additional tightening beyond that.