Overview

On 28 August 2026, the U.S. dollar index climbed 0.5% to 99.65 at 15:36 ET (19:36 GMT), reaching its highest level since 18 August. The rise followed Federal Reserve official Kevin Warsh’s first keynote at the Jackson Hole Economic Policy Symposium, which was widely interpreted as hawkish. Warsh emphasized that underlying inflation trends had not “meaningfully improved” and reiterated the Fed’s priority of price stability.

Market Reaction

Traders responded by increasing expectations of a September rate hike. The CME FedWatch tool showed the probability of a 25‑basis‑point increase rising to more than 57%, up from roughly 35% the previous day. Deutsche Bank analysts, led by Matthew Luzzetti, noted that the market now expects the September hike to be 25 bps and a total of 50 bps of tightening this year, with another 25 bps likely in December.

Bond Market Impact

U.S. Treasury yields moved higher after the speech. The benchmark 10‑year yield rose 5.9 bps to 4.729%, while the 2‑year yield jumped 12 bps to 4.352%. A surprise intervention by the Treasury Department the week before had little effect on capping yields. Higher yields function similarly to rate hikes by raising borrowing costs for consumers and businesses, which in turn supports the dollar.

Dollar Weekly Performance

The dollar is on track for a weekly gain of about 1%, erasing the losses incurred in the prior week’s “debasement trade,” where the index fell nearly 1% as investors shifted from fiat to gold and cryptocurrencies. Although gold and crypto posted modest gains this week, the strengthening dollar limited their upside.

Canadian Dollar and Trade Tensions

The Canadian dollar weakened about 1% amid an escalating trade war with the United States. Recent negotiations collapsed, leading to reciprocal tariffs. President Donald Trump also announced the renaming of Lake Ontario to “Lake America.” Canadian Q2 GDP data showed an annualised growth rate of 3.3%, a sharp rebound from the revised Q1 growth of 0.3% and above the Bank of Canada’s forecast of roughly 2.5%. David Doyle, head of economics at Macquarie, described the Canadian economy as resilient despite the trade‑war headwinds, citing fiscal intervention and strong cyclical and structural drivers.

Asian Currency Movements

In Asia, the Japanese yen fell to 160 per dollar, the first time it reached that level since a historic joint U.S.–Japan intervention at the end of July, a threshold that has previously triggered intervention. The South Korean won appreciated against the dollar, with the USD/KRW pair on track for a weekly loss of 0.5%. The Bank of Korea raised its policy rate for a second consecutive meeting, pushing borrowing costs to an 18‑month high.

Contributors

The article was compiled by Ayushman Ojha, Pranav Kashyap, and Jaiveer Shekhawat.