USD: Warsh says the work is not done
The US dollar index rose 0.6% on Friday to 99.66 and finished the week ending 28 August close to 1% higher. It gained against every major currency except the Australian dollar. Almost all of that came in a single session, and it came from one speech.
Federal Reserve Chair Kevin Warsh used his first Jackson Hole keynote to say that inflation remains too high and that the central bank still has work to do. He acknowledged that the summer's inflation readings had come in better than expected, then said they did not tell him underlying trends had meaningfully improved, and pointed to further increases in the coming months as a live possibility. The two-year Treasury yield rose more than 12 basis points to 4.356%. Interest rate futures moved to price roughly a 60% chance of an increase at the 16 September meeting, up from about 35% before he spoke. Gold fell around 3% and the Nasdaq 100 lost more than 0.6%.
The week's data had already leaned that way. Wednesday's second estimate of second-quarter GDP left growth at 1.5% annualised, unrevised, and well below the 2.1% recorded in the first quarter. Core PCE inflation held at 3.3% on the year, with the monthly pace ticking up to 0.2% from 0.1%. Slow growth alongside core inflation more than a percentage point above target is an uncomfortable combination for a central bank, and Warsh resolved it publicly in favour of the inflation side.
Equity markets spent the week narrow. Nvidia reported second-quarter results that beat expectations and guided to 70% revenue growth for its 2027 financial year, taking its market capitalisation to around US$5.5 trillion, yet its shares fell close to 3.5% on Friday as the rate repricing worked through. Salesforce, Okta and CrowdStrike also beat. The index-level story was a handful of names carrying a market that a hawkish Fed had just made more expensive to hold.
Friday's employment report is the week's event. It is the last comprehensive read on the labour market before the 16 September meeting, and it arrives with the market already pricing a hike at roughly even-to-better odds. Payrolls growth that holds up alongside a stable unemployment rate would confirm Warsh's framing and push September pricing higher, taking the dollar with it; a materially soft print would force the market to weigh a labour market that is loosening against a Chair who has said the summer's better inflation numbers do not change his view, and the dollar would give back part of last week's gain.
Tuesday brings the ISM manufacturing survey and July job openings, and Thursday the ISM services index. Job openings are the more useful of the three for this particular question, because the argument inside the Fed is about whether the labour market is still tight enough to keep services inflation elevated. Monday's Chicago PMI and the Dallas Fed manufacturing survey are secondary.
EUR: France and Spain rebuild the case for another increase
The euro fell around half a per cent against the US dollar in the week ending 28 August, trading near 1.1650 on Friday at a one-week low. It remained on course for a second consecutive monthly gain, which is the more accurate description of where the single currency has been: the week's decline was a dollar event rather than a European one.
The European data pointed the other way. Friday's national inflation figures showed EU-harmonised prices rising 2.7% on the year in France and 4.5% in Spain, both firmer than the previous month and both read as renewed price pressure rather than noise. Markets now price the European Central Bank deposit rate reaching 2.80% by March, against 2.25% today, which implies two further increases within seven months.
Thursday's account of the Governing Council's most recent meeting supported that pricing without adding to it. Policymakers judged that another increase would likely be necessary to return inflation sustainably to 2%, and several members noted that further tightening would be warranted unless the inflation outlook improved significantly. Nothing in the record surprised the market, and the euro barely moved on its release.
The growth backdrop remains the weaker half of the argument. The euro area economy is expanding at a modest pace, below trend, with higher energy prices and softer external demand expected to limit activity through the rest of 2026. A central bank tightening into subdued growth is a durable source of support for a currency only while the growth side holds up, and that is the tension the single currency carries into September.
Tuesday's flash estimate of euro area inflation for August is the decisive release. The French and Spanish figures published on Friday give it a firm starting point, and the aggregate print will determine whether the March pricing at 2.80% holds. A headline at or above 2.5% with core firm would confirm the September increase and support the euro against everything except a dollar that is also repricing; a softer aggregate, with the German and Italian components offsetting Friday's numbers, would push the second increase out past March and leave the currency exposed.
Friday's US employment report is the other side of the same trade. With both central banks now expected to raise rates, the euro-dollar exchange rate is being set by which of the two moves first and by how much, rather than by the direction of either on its own.
GBP: cheaper oil pushes the Bank's next move into 2027
Sterling fell 0.4% against the US dollar in the week ending 28 August, its first weekly decline in more than a month, trading near 1.3580 on Friday after slipping below 1.3600. The pound had reached a six-month high the previous week, so this was a retreat from a strong position rather than a break in the trend.
The driver was oil. Brent crude eased back from the levels near $94 a barrel it reached in the week to 21 August, and a cheaper energy path took some of the urgency out of the UK inflation outlook. Markets responded by pushing the Bank of England's next increase into 2027 from late 2026. LSEG data showed around 24 basis points of tightening priced by December and 36 basis points by February 2027, which is a market that expects one move and is no longer confident about when.
The domestic inflation picture has not actually improved. Consumer price inflation rose to 2.9% in July on higher household energy bills and is expected to climb further toward the end of the year. What has changed is the labour market, which remains subdued enough to make the Monetary Policy Committee cautious about tightening into it. The Committee is being asked to raise rates against rising headline inflation and weak employment at the same time.
Gilt yields remain the awkward part of the picture. The ten-year yield has held above 5%, the highest in the G7, and it has been trading as a fiscal signal rather than a rate expectation. A currency backed by high yields that reflect borrowing concerns rather than policy tightness does not get the support from those yields that the level would ordinarily imply.
The UK calendar is thin, with final purchasing managers' surveys the only scheduled releases of consequence. That leaves sterling as a residual of the dollar and of the gilt market, and it means Friday's US employment report will do more to move the exchange rate than anything published in London.
Two things could disturb that. A further move in Brent, in either direction, would feed straight back into December and February Bank of England pricing given how directly the market linked the two last week. And any renewed pressure at the long end of the gilt curve would matter for the currency, with a move back toward 5.2% likely to weigh on sterling even though the yield itself is rising, while a settling of the long end below 5% would let the pound trade on the rate outlook again.
JPY: better Tokyo inflation, and 160 back in view
The Japanese yen finished the week ending 28 August modestly weaker against the US dollar. The pair traded near 159.30 in Asian hours on Friday, then pushed back above 159.50 and toward 160.00 through the European and US sessions as the dollar rose. The yen has now spent a month unable to convert good domestic news into sustained gains.
Friday's Tokyo inflation figures were the good domestic news. Headline inflation for the capital eased to 1.9% in August from 2.0%, but core inflation accelerated to 1.8% from 1.7% against expectations for no change, and the measure excluding food and energy reached 2.0%. Unemployment fell to 2.4% against forecasts of 2.5%. The yen firmed on the release and gave the gains back within hours.
The Bank of Japan is close to moving. Markets price roughly an 87% chance of a 25 basis point increase to 1.25% at the 18 September meeting, against about 23% before the July meeting. That is one of the most fully priced central bank moves among the majors, which is precisely why Friday's data did so little: a hike the market already expects cannot lift a currency further, and the US leg moved instead.
The intervention question sits underneath all of it. Japan's Ministry of Finance and the US Treasury bought yen jointly on 1 August, the first coordinated operation of its kind since 1998, and the currency strengthened to around 155 before surrendering roughly half of that within a fortnight. Officials have treated 160 as the level at which a rapid move would draw a response. The pair spent Friday afternoon within half a yen of it.
The Japanese calendar carries nothing that would set direction, which makes the 160 level and the language coming from the Ministry of Finance the week's real events. A rapid approach through 160 would raise the probability of a second intervention, and the currency's behaviour in that scenario depends on whether the market reads any operation as coordinated with Washington again; a slower approach would more likely draw verbal warnings than action.
Friday's US employment report is the fundamental driver. The yen's problem is a rate differential that Warsh widened on Friday, and payrolls that support September pricing in the United States would widen it further even with a Bank of Japan increase almost fully priced for 18 September. A soft American number would narrow the gap from the other end, and that is the more plausible route to a stronger yen than anything Tokyo publishes this week.
CAD: a 3.3% growth print that arrived too late in the week
The Canadian dollar weakened over the week ending 28 August, with the US dollar trading near 1.3850 to 1.3900 on Friday against 1.3760 on 21 August, which had been the Canadian currency's strongest level in three months. The week's loss came almost entirely on Friday, and it came despite the best Canadian economic news in more than three years.
Statistics Canada reported that real GDP grew 3.3% annualised in the second quarter, the fastest quarterly pace since early 2023 and comfortably above the Bank of Canada's 2.5% forecast. On a non-annualised basis the economy expanded 0.8%, led by exports, household spending and business investment, with the strongest export quarter in 39 months and solid gains in corporate spending on factories, equipment and commercial property. The first quarter's contraction was revised higher at the same time. Thursday had already brought an unexpected current account surplus, and the Canadian dollar gained on it.
Friday reversed the arithmetic. Warsh's Jackson Hole remarks lifted the US two-year yield more than 12 basis points and the dollar index 0.6%, and a rate differential moving that far in one session outweighed a growth print that had already been partly anticipated. The Canadian dollar has now spent three consecutive weeks taking direction from Washington rather than Ottawa.
Oil provided no offset. Brent eased back over the week from the levels near $94 a barrel reached in the week to 21 August, when the expiry of the sixty-day memorandum of understanding between Washington and Tehran without an agreement had lifted prices. A commodity currency with a strong domestic quarter and a softening energy backdrop finished lower on a week when the dollar rose, which is a reasonable summary of where the Canadian dollar sits.
The Bank of Canada announces on Wednesday and is widely expected to leave the policy rate at 2.25%. The decision is not the event; the accompanying language is. Friday's growth figures came in well above the Bank's own forecast, and a statement that acknowledges that while pointing to trade risks and the sustainability of domestic demand would be read as a hold with no bias, leaving the currency on the dollar's coat-tails. A statement that treats 3.3% as evidence the easing cycle is finished would give the Canadian dollar its own story for the first time in a month.
Friday brings Canadian employment alongside the US payrolls report. The two arriving in the same half hour tends to compress the Canadian reaction into the differential rather than the level, so a Canadian print that is strong relative to the American one would matter more than a strong print in isolation, and the reverse holds as well.
CHF: a zero policy rate against a Fed talking about increases
The Swiss franc weakened over the week ending 28 August, with the US dollar rising 0.63% on Friday to 0.8093 francs and the franc reaching its weakest level since 19 August. The currency remains firmer over the month as a whole, which is the more representative frame: the week's move was one session of dollar strength rather than a change in the franc's standing.
The rate gap explains most of it. The Swiss National Bank has held its policy rate at 0% since June, judging that the stance supports price stability and growth, and board member Petra Tschudin has kept open the possibility of moving below zero if that is what holding medium-term inflation inside the 0–2% band requires. The US two-year yield closed Friday at 4.356%. No two major economies among the eight carry a wider policy contrast, and Warsh's speech widened it further in a single afternoon.
Safe-haven demand did not offset the differential. Gold fell around 3% on Friday and equity markets declined only modestly, so the week did not produce the sort of risk event that normally lifts the franc regardless of where rates sit. When the franc trades purely on carry, a zero policy rate is a difficult starting position.
The domestic inflation picture is the reason the SNB has room to stay where it is. Swiss inflation has been running at the bottom of the target range, and the debate inside the central bank is about how much further it can fall before a return to negative rates becomes the practical answer rather than a rhetorical option.
Swiss consumer price figures for August are due on Thursday and are the week's decisive domestic release. A reading that holds inside the target range would leave the SNB comfortable at 0% and the franc trading on the dollar; a print that turns negative on the month, or takes annual inflation to the floor of the band, would move the market's assessment of a return to negative rates from a possibility to a live scenario and would weigh on the currency in its own right.
Friday's US employment report sets the other side. With the Federal Reserve pricing a September increase at roughly even odds after Warsh's speech, the dollar-franc rate is now the widest expression among the majors of the divergence between a central bank considering higher rates and one considering rates below zero. Payrolls that confirm the American picture would extend that; a soft number would narrow it from the side the franc cannot influence.
NZD: an increase almost fully priced, and a flat week regardless
The New Zealand dollar eased 0.2% against the US dollar in the week ending 28 August, trading near 0.5960 on Friday after gaining during the session. Against a dollar index that rose close to 1% over the same five days, a two-tenths decline is a currency holding its position, and the reason it held is the Reserve Bank.
The Reserve Bank of New Zealand is expected to raise the Official Cash Rate by 25 basis points to 2.75% on Wednesday. A Reuters poll conducted between 20 and 27 August found 27 of 31 economists forecasting the move, and market pricing sits near 94%. Two-thirds of those surveyed expect at least one further increase this year, taking the cash rate to 3.0% or higher by December. BNZ is among those calling the September move.
That expectation has been building since July, when the central bank raised the cash rate for the first time in more than three years and signalled further tightening aimed at returning inflation to the 1–3% target band. The kiwi has been trading on that signal for six weeks, and it is the reason a hawkish Federal Reserve chair produced a smaller decline here than in the euro, sterling or the franc.
It also explains why Wednesday's move may do less than its size suggests. A 25 basis point increase priced at 94% is largely in the exchange rate already. The New Zealand dollar lagged the Australian dollar's 0.4% gain over the week, and AUD/NZD firmed accordingly, because the Australian repricing was new while the New Zealand one was not.
Wednesday's Reserve Bank decision is the week's event, and the projections matter considerably more than the 25 basis points. The market has the increase and expects the cash rate at 3.0% or above by December, so the question is whether the published track validates that. A projection that endorses a terminal rate above 3.0% would give the kiwi something new to price and would lift it; a track that shows the Bank stopping at 2.75% or 3.0% would leave a fully anticipated increase looking like the end of the cycle, and the currency would ease on the day it tightened.
Friday's US employment report follows two days later and will determine how much of any move survives the week. With the Federal Reserve now priced at roughly even odds for September, the New Zealand dollar's advantage over the other majors is a central bank that is unambiguously moving, and a strong American payrolls print would erode that advantage without changing anything in Wellington.