The euro has come under renewed pressure against the US dollar, with EURUSD slipping as markets brace for Fed Chair Warsh’s Jackson Hole address. The dollar has regained support from sticky US inflation and increasingly hawkish remarks from Fed officials, reinforcing the possibility that US monetary policy may need to remain restrictive or tighten further. The euro’s downside has nevertheless been cushioned by expectations that the ECB could deliver another rate increase as elevated energy costs threaten renewed inflation pressure. For now, however, the pair remains primarily driven by the US side of the equation, with Warsh’s assessment of inflation and the policy outlook likely to determine whether the dollar’s recovery extends.

The pound has steadied after retreating from a six-month high, with the recent pullback driven largely by a scaling back of Bank of England tightening expectations. Lower oil prices have eased concerns that the recent inflation pickup will require an immediate policy response, and markets no longer fully price a 25-basis-point BoE rate hike until early 2027. Sterling nevertheless remains relatively well supported by still-elevated UK inflation, attractive gilt yields and a reasonably resilient domestic economy, although signs of softness in the labor market argue against near-term tightening. With little major UK data currently driving trade, the pound’s immediate direction is being dictated primarily by the US dollar and expectations surrounding Fed Chair Warsh’s Jackson Hole address, where any hawkish signal could place renewed pressure on GBPUSD.

The yen has strengthened modestly after hotter Tokyo inflation reinforced expectations that the Bank of Japan could raise rates as early as September. Headline, core and underlying inflation measures all accelerated in August, with the data strengthening the case for further policy normalization. BoJ Deputy Governor Himino also emphasized the need to pay greater attention to upside inflation risks, although the yen initially struggled after he stopped short of explicitly signaling an imminent hike. The currency’s gains remain constrained by Japan’s still-wide yield disadvantage against the US, leaving USDJPY highly sensitive to Fed Chair Warsh’s Jackson Hole speech and any fresh guidance on the US interest-rate outlook.

The Australian dollar remains well supported, with hotter-than-expected July inflation sharply increasing expectations that the Reserve Bank of Australia will need to raise rates again. Markets are now fully pricing a hike by November and assign a meaningful chance of an earlier move in September, while several major Australian banks have brought forward their tightening forecasts. The resulting yield support, alongside a broader preference for higher-yielding currencies, has helped AUDUSD extend its advance through 0.7200, although the next directional catalyst will likely come from Fed Chair Warsh’s Jackson Hole speech and its implications for US interest rates, Treasury yields and the US dollar.