On Monday (August 31) during the Asian session, the euro fell to a new low against the dollar, hitting 1.1574, its lowest level since August 20. The exchange rate then fluctuated slightly higher and is currently trading around 1.1585, almost sideways. The euro's weak rebound is unlikely to change its short-term weakness, as Warsh's hawkish stance has given the dollar an advantage in terms of interest rate differentials. Danske Bank's research team pointed out that Fed Chairman Warsh's hawkish speech at Jackson Hole pushed the euro lower against the dollar, with the market pricing in a near 50/50 probability of a September rate hike. Warsh reiterated that the 2% PCE target is "firm and fixed," and that "work is still needed" if inflation does not move toward the target at a sufficient pace. This represents a significant shift from his tone at the July press conference, where he emphasized that the market determines the direction of interest rates. Danske noted that Warsh's speech strengthened the dollar against both the euro and the yen. Although the euro was largely unchanged against the dollar in early Asian trading, the hawkish Fed comments put pressure on the euro.

Warsh's hawkish remarks weighed on the euro, and the probability of a September rate hike is now close to 50/50.

Danske Bank points out that Federal Reserve Chairman Warsh delivered a distinctly hawkish speech in Jackson Hole, reiterating that the 2% PCE inflation target is "firm and fixed," and emphasizing that the Fed still has "work to do" if inflation fails to move toward the target at a sufficient pace. This statement contrasts sharply with his tone at the July press conference, which emphasized that "the market determines the direction of interest rates," indicating a clear shift in policy stance. As a result, the euro weakened against the dollar, and the market pushed the probability of a September rate hike to near "50/50." Cleveland Fed President Hammark (who had previously voted for a rate hike at the July meeting) further called for immediate rate hikes, warning that waiting could lead to greater pain. She expects inflation to remain around 3% by the end of the year, well above the 2% target, and believes that current financial conditions are not sufficiently restrictive. Hawkish comments strengthened the dollar, directly pressuring the euro. In the short term, if subsequent US data continues to support this stance, the euro may face further pressure against the dollar; conversely, if the data softens, the market may reassess the rate hike path, providing the euro with breathing room.

Focus on German inflation and Eurozone data

Market focus has quickly shifted to key European data this week. German August inflation data will be released on Monday, with the market expecting the overall HICP to rise from 2.8% year-on-year to 3.1%, primarily driven by energy prices. Tuesday's Eurozone overall inflation data will be a crucial indicator of regional inflation stickiness. Core inflation momentum is particularly closely watched – data released last week by France and Spain showed no significant impact from energy shocks, indicating relatively mild internal pressure. Friday's US non-farm payroll report is another key event risk. Danske Bank points out that Warsh's speech has pushed the dollar higher against both the euro and yen, and hawkish Fed comments continue to put pressure on the euro. The bank expects the euro to fluctuate between 1.1550 and 1.1650 in the short term, awaiting new directional guidance from German and Eurozone inflation data and the US jobs report. Strong European data could strengthen ECB policy expectations and support the euro; moderate data could prolong the euro's weakness. Overall, the divergence between transatlantic policy expectations and data will dominate near-term price movements.

Summarize

Danske Bank noted that Warsh's hawkish remarks pushed the euro lower against the dollar, with the probability of a September rate hike nearing 50/50. Warsh reiterated that the 2% target is "firm and unwavering," while Hammark called for an immediate rate hike. The market is focused on German and Eurozone inflation data and Friday's US non-farm payroll report. Hawkish Fed comments are putting pressure on the euro, which may fluctuate between 1.1550 and 1.1650 in the short term. (Euro/USD daily chart, source: EasyForex) At 15:11 Beijing time, the euro/dollar exchange rate was 1.1586/87.