The dollar held steady near a two-week high on Monday as markets ramped up bets on a rate hike after hawkish remarks by Federal Reserve Chair Kevin Warsh, while the yen slipped back through the closely watched 160-per-dollar level.The US central bank will "have work to do" if policymakers don't get the confidence they need that inflation is heading down to 2 percent, Federal Reserve Chairman Kevin Warsh said on Friday, in his clearest indication yet that further tightening may be needed to curb price pressure.
The comments fueled bets on a September rate hike. Markets raised the implied probability of a move next month to 57 percent, while yields on interest-rate-sensitive two-year US Treasury notes rose to a more than one-month high of 4.33 percent.
"Warsh's defense of the inflation target has reduced a major drag on the US 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 US data, particularly Friday's nonfarm payrolls report and next week's consumer inflation figures, both of which could shape expectations ahead of the September Fed meeting.
