Dollar slips

The dollar inched lower on Monday, but remained near a roughly two-week high, as markets ramped up bets on a rate hike after hawkish remarks from Federal Reserve Chair Kevin Warsh and renewed Gulf tensions, while the yen traded near the closely watched 160-per-dollar level.

The US central bank will “have work to do” if policymakers do not get the confidence they need that inflation is heading down to 2 percent, 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.

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Markets raised the implied probability of a move next month to 58 percent, while yields on interest-rate-sensitive 2-year US Treasury notes held just below a more than one-month high.

“Warsh’s prepared remarks seemed designed to lift rate-hike expectations, rebalance the September debate towards the hawks and rebuild his inflation-fighting credibility,” Elwin de Groot, head of macro strategy at Rabobank, said.

“Warsh delivered an important signal: the Fed is not relying on tighter financial conditions alone and remains willing to tighten further if underlying inflation stalls,” he added.

Investors are now turning their focus to upcoming 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.

The euro edged up roughly 0.11 percent to $1.1597, while sterling inched higher to $1.3543. Both currencies remained on track for their second consecutive monthly gains.

The dollar index , which measures the US currency against six major peers, was down 0.11 percent to 99.53 after hitting 99.73 on Friday, its strongest since August 17.

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

Elsewhere, renewed tensions in the Gulf drove oil prices higher, with Brent crude futures last up 2.5 percent on the day to $90.21 a barrel. US forces struck Iran’s Larak Island on Sunday, marking the first known American strikes on Iran since late July.

US President Donald Trump said in a social media post that Iran’s energy hub of Kharg Island is being “blown to smithereens” although there was no evidence that the island was under attack.