Forex week in review 35/2026: Warsh at Jackson Hole

The dollar had its best week in roughly ten weeks after Fed Chair Kevin Warsh used his first Jackson Hole speech to say the Fed still has work to do on inflation. Two-year Treasury yields jumped, odds of a September hike rose, and USD/JPY pushed back above 160.

Pair	Open	Close	Change	Note
EUR/USD	1.168	1.1587	-0.80%	First weekly fall after four straight gains; Friday low near 1.1582 after Warsh spoke
GBP/USD	1.3643	1.3537	-0.78%	Four-week winning streak ended; almost all the damage came on Friday
USD/JPY	158.96	160.04	+0.68%	Back above 160 on Friday, the level Tokyo had spent heavily defending
AUD/USD	0.7172	0.7164	-0.11%	Hit 0.7207 midweek before giving it back on the Friday dollar bid
USD/CHF	0.8012	0.8093	+1.01%	Franc the weakest major against the dollar this week
Gold (Comex futures)	4673.4	4529.9	-3.07%	Traded up to 4,755 on Tuesday, then sold off as yields jumped on Friday

The dollar spent four days drifting and one day running. From Monday to Thursday the dollar index went sideways in a narrow band around 99, with traders unwilling to commit before Fed Chair Kevin Warsh's first Jackson Hole speech. On Friday Warsh made it clear that the Federal Reserve is focused on inflation that is still too high, the market priced a September rate hike as more likely than not, and the dollar recorded its biggest daily gain in about two and a half months. EUR/USD finished the week down 0.8% at 1.1587, USD/JPY closed above 160 for the first time in weeks, and gold futures lost just over 3%.

If you only read one thing about this week, make it this: the move was about interest-rate expectations, not about any single data point. Nothing in the speech was a surprise in isolation. What changed was the market's estimate of the probability that the Fed raises rates on 16 September, and currencies follow that kind of probability shift very quickly. Our guide to central banks and interest rates explains why rate expectations sit at the centre of almost every major currency move.

Where we started: a weak dollar and a nervous bond market

To understand Friday you need the backdrop. The previous week, on 19 August, the US Treasury said it would increase buybacks of long-dated government debt, with the maximum size of each operation at least doubling to $4 billion from 9 September. Some investors read it as an attempt to cap long-term yields; critics, quoted by CNBC, worried it would complicate the Fed's inflation fight and add political pressure on the central bank. The dollar fell sharply and broadly on the news, and by the close on Friday 21 August the dollar index (the ICE futures contract) stood at 98.80.

Meanwhile the long end of the Treasury market was under strain. The 30-year yield had touched a 19-year high, and CNBC reported it at 5.173% on Wednesday morning, with the 10-year around 4.64%. Bank of America described the dollar as "on edge" heading into Jackson Hole and warned it could extend its sell-off if Warsh disappointed. Stifel expected a dovish message. In other words, positioning going into the week leaned towards a softer Fed.

Over in Japan, the yen remained the market's biggest pressure point. USD/JPY opened the week at 158.96, close to the 160 area that Japanese officials are widely seen as defending. That matters for the end of this story.

Day by day

Monday 24 and Tuesday 25 August: waiting

The first two sessions were quiet for currencies. The dollar index closed Monday around 99.00 and Tuesday around 98.92. EUR/USD spent both days between roughly 1.164 and 1.169, and GBP/USD held in the mid-1.36s. The more interesting market was gold: Comex futures traded as high as 4,755 on Tuesday, near the top of their recent range, as lower real-yield expectations and the softer dollar of the prior week kept buyers interested. Holding a gold position through a week like this is a good example of why you need to understand leverage and margin: a 3% swing in the underlying can be a far bigger swing on a leveraged account.

Wednesday 26 August: July PCE

The Bureau of Economic Analysis published July personal income and outlays at 8:30 a.m. Eastern. The PCE price index, the Fed's preferred inflation measure, rose 0.2% on the month and 3.7% from a year earlier. Core PCE, which strips out food and energy, rose 0.2% on the month and 3.3% on the year. Personal income rose 0.4% and spending 0.2%.

Neither number moved the needle much on the day, but both mattered for the end of the week. A 3.7% headline rate with a policy rate in the 3.50–3.75% range means real short-term rates are around zero or slightly negative, which is not obviously restrictive. CNBC reported that odds of a September hike briefly topped 40% after the release. The dollar index closed the day at about 99.17, near an eight-day high.

Thursday 27 August: claims and Fed speakers

Initial jobless claims fell to 203,000, below the 208,000 expected in a Reuters poll and down for a second week. The goods trade deficit widened to $118.8 billion in July from $101.4 billion, the largest since March 2025. Kansas City Fed President Jeffrey Schmid and Chicago Fed President Austan Goolsbee both voiced concern about the inflation outlook, and Reuters reported that Boston Fed President Susan Collins described the latest inflation reading as "mixed".

Despite that, CME FedWatch odds of a September hike slipped back to around 34%, and the dollar barely moved: the index was flat around 99.17 and EUR/USD around 1.1647. One trader quoted by CNBC said the FX market was "in a bit of a trance", which was a fair description of the first four days.

Friday 28 August: Warsh at Jackson Hole

Warsh spoke at 10:00 a.m. Eastern (14:00 GMT). Among the points reported by FinanceFeeds and Reuters:

Twelve-month PCE inflation was 3.7%, and the six-month annualised pace was 4.1%, which means inflation was running faster in recent months than over the full year.
Of 199 PCE components, 54% had risen by more than 3% over the past year, a sign that price pressure was broad rather than concentrated in energy.
He described the economy as resilient, the labour market as consistent with full employment (unemployment 4.1%), and financial conditions as hard to call restrictive.
He said the Fed's main focus should be prices, that policymakers have "work to do" until underlying inflation moves back towards 2%, and that forward guidance had "overstayed its welcome".

The market reaction was quick and one-directional. The two-year Treasury yield jumped about 11 basis points to 4.34%. The 10-year rose about 5 basis points to 4.72%, and the 30-year rose only modestly. That is a bear flattener: short-dated yields rising more than long-dated ones, which is the classic signature of the market pricing near-term rate hikes.

According to Reuters, odds of a September hike rose to around 57.5% from about 35% before the speech. The dollar index rose roughly 0.6% on the day to 99.69, its biggest daily gain since mid-June, and closed the week at 99.70. EUR/USD fell to $1.1582, its lowest since 19 August. Sterling dropped to around $1.3528. USD/JPY climbed through 160 and closed the week at 160.04.

Pair by pair

EUR/USD: four-week winning streak over

EUR/USD opened at 1.1680 and closed at 1.1587, down 0.8%, its first weekly fall after four straight weekly gains according to Reuters. Almost the whole loss came after 14:00 GMT on Friday. Hourly data show the pair at about 1.1650 shortly before the speech and below 1.1600 within two hours. If you had a tight stop below Thursday's low, this is the kind of session where it gets filled at a worse price than you set, because the order book thins out as the headline lands. Our guide to slippage covers why that happens.

The euro side of the equation was not idle. Traders were already pricing a 25 basis point ECB hike for 10 September, driven by energy-led inflation in the euro area. But in a week when the market added roughly 20 percentage points of probability to a Fed hike, the US side of the rate differential moved more.

GBP/USD: a Friday story

Cable opened at 1.3643 and closed at 1.3537, down 0.78%. Reuters noted the pound was set to end a four-week winning streak. As with the euro, Monday to Thursday was range trading and Friday did the damage. The point worth noting for newer traders is that GBP/USD fell a little less than EUR/USD, so EUR/GBP was marginally lower on the week. When the dollar is the driver, the crosses often barely move. You can check this yourself: if EUR/USD and GBP/USD fall by roughly the same percentage, the story is the dollar, not the euro or the pound.

USD/JPY: back above 160

USD/JPY opened at 158.96 and closed at 160.04, up 0.68%, and Reuters said it was on course for its third weekly gain in four. This is the pair with the most uncomfortable backdrop. On Friday Japan's Ministry of Finance published its monthly intervention data, showing ¥15,399.3 billion spent between 30 July and 26 August, a record for a single period, which covered the joint operation with the United States in late July. Within hours, a hawkish Fed chair had pushed the pair back above the level that all that money had been spent defending.

The lesson is about what intervention can and cannot do. Selling dollars and buying yen can slow a move and punish short-term speculators, but it cannot change the fundamental driver, which is the gap between US and Japanese interest rates. When US two-year yields jump 11 basis points in an afternoon, that gap widens, and carry traders are paid more to hold dollars against yen. The swap and overnight financing guide explains how that rate gap shows up in the overnight charges on a retail account.

Tokyo's own data were not quiet either: Reuters reported that Tokyo core inflation accelerated in August for a third straight month, which keeps a Bank of Japan hike on the table for September.

AUD/USD: resilient until Friday

The Australian dollar opened at 0.7172, traded as high as 0.7207 midweek, and closed at 0.7164, down just 0.11%. It held up better than the European currencies, partly because the Reserve Bank of Australia's cash rate of 4.35% is already above the Fed's range, so a Fed hike narrows rather than reverses the rate gap.

USD/CHF: the franc was the weakest major

USD/CHF opened at 0.8012 and closed at 0.8093, up 1.01%, the largest move among the majors here. The franc had rallied hard during the previous week's dollar sell-off, so it had more to give back. When a big move reverses, the currency that gained most on the way down often loses most on the way back.

USD/CAD: trade war plus Fed

The Canadian dollar was down about 1% for the week, its biggest weekly drop in just over two months, according to Reuters. Trade talks between the United States and Canada collapsed the previous weekend, with both sides announcing tariffs. Not even a sharp rebound in Canada's second-quarter GDP, released on Friday, could offset the Fed-driven dollar bid. USD/CAD opened at 1.3794 and closed at 1.3902.

Gold: hit twice

Comex gold futures opened the week at 4,673.40, reached 4,755 on Tuesday, and closed at 4,529.90, down 3.07%. Friday's low was 4,495. Gold was hit by both of the forces that matter most for it in the short term: a stronger dollar and higher yields. Gold pays no interest, so when the yield available on short-dated Treasuries jumps, the opportunity cost of holding gold rises.

Why the dollar moved: the mechanics

Consider a simplified worked example. Suppose the market is choosing between two outcomes for 16 September: the Fed holds at 3.50–3.75%, or it hikes by 25 basis points. If the probability of a hike rises from 35% to 57.5%, the expected policy rate after the meeting rises by 0.225 × 25 = about 5.6 basis points. That sounds tiny. But the market does not only price one meeting; it reprices the entire path of rates for the next year or two. The 11 basis point jump in the two-year yield tells you traders were pricing more hikes further out, not only the September one.

For a currency pair, the relevant number is the gap between two countries' rates. If US two-year yields rise 11 basis points and German two-year yields rise by less, the yield advantage of holding dollars over euros widens, and money flows accordingly. That is why the dollar rose against every major currency on Friday without any change in the euro area, Japan or the UK.

The other mechanic worth understanding is positioning. Going into the speech, many analysts expected Warsh to avoid guidance or lean dovish to calm the bond market. When the speech went the other way, traders who were short dollars had to buy them back, which accelerates the move. This is why the biggest moves often come when the outcome surprises the consensus, not when the outcome is extreme. Our guide on how economic data moves forex explains the same idea for data releases: surprise relative to expectations is what matters.

What this week teaches

Speeches can move markets as much as data. A central bank chair's speech has no actual or consensus figure, but the market still has an expectation, and the gap between expectation and outcome drives price.
Watch the two-year yield. The two-year Treasury yield is the cleanest real-time gauge of where the market thinks the Fed is heading. On Friday it told you everything the dollar was about to do.
Quiet weeks can end violently. Four days of tight ranges are not a signal that the fifth will be calm. If you know a high-impact event is scheduled, size your positions for the event, not for the quiet days before it. The position sizing guide walks through how to do that using your stop distance.
Intervention buys time, not direction. Japan's record spending did not stop USD/JPY returning to 160 once US yields rose. Trading against a central bank is risky, but so is assuming a central bank can hold a level indefinitely.
Leverage cuts both ways. A 1% move in USD/CHF or a 3% move in gold is a modest event on an unleveraged basis and a large one at 30:1 or 20:1. Most retail CFD accounts lose money (broker disclosures typically show figures in the 61–89% range), and weeks that end with a sudden repricing are a big reason why.

Scheduled next week (31 August – 4 September)

These events were on the calendar for the coming week. We list them for planning purposes only; how markets respond is unknowable in advance.

Monday 31 August: UK markets closed for the summer bank holiday. German preliminary August CPI.
Tuesday 1 September: Euro-area flash HICP inflation for August. US ISM manufacturing PMI.
Wednesday 2 September: Bank of Canada policy decision. Australia second-quarter GDP. US JOLTS job openings and ADP private payrolls around midweek.
Thursday 3 September: US ISM services PMI and weekly jobless claims. Several Fed speakers, including Governor Christopher Waller.
Friday 4 September: US employment report for August (non-farm payrolls, unemployment rate, average hourly earnings).

If you are new to reading a calendar like this, our guide to using an economic calendar explains impact ratings, consensus figures and time-zone conversion.

Sources

Not investment advice. This is general information and education, written without knowledge of your circumstances. It is not a recommendation to buy or sell any instrument. Past performance is not a reliable indicator of future results. Trading leveraged products carries a high risk of losing money. Risk warning

Forex week in review 35/2026: Warsh turns hawkish at Jackson Hole