During Monday's Asian trading session, EUR/USD briefly touched a fresh low of 1.1574, its weakest level since August 20, before drifting slightly higher to hover near 1.1585, remaining largely rangebound. This modest rebound does little to alter the currency pair's fragile short-term outlook, as Kevin Warsh's hawkish stance gives the US dollar an edge on interest rate differentials.

Danske Bank's research team highlights that Federal Reserve Chair Kevin Warsh's hawkish speech at Jackson Hole has pushed EUR/USD lower, with market pricing for a September rate hike now nearing a coin flip. Warsh reaffirmed the 2% PCE target as "firm and fixed" and emphasized there remains "work to do" if inflation does not progress toward the goal at a sufficient pace, a notable shift from his July press conference tone that stressed market-driven rate decisions. According to Danske, Warsh's comments strengthened the dollar against both the euro and the Japanese yen, and while EUR/USD remained broadly flat in early Asian trade, the hawkish Fed rhetoric continues to weigh on the single currency.

Warsh's Hawkish Tone Pressures Euro, September Hike Odds Near Toss-Up

Danske Bank notes that Fed Chair Warsh delivered a distinctly hawkish message at Jackson Hole, reiterating the 2% PCE inflation target as "firm and fixed" and underscoring that the Fed still has "work to do" if inflation does not approach the goal quickly enough. This stance contrasts sharply with his July press conference, where he placed greater emphasis on "market-determined rate direction," signaling a clear policy pivot. As a result, EUR/USD declined, and market pricing for a September rate hike has climbed to near a fifty-fifty probability.

Cleveland Fed President Beth Hammack, who voted for a rate increase at the July meeting, went further by urging immediate action, warning that continued waiting could cause greater pain. She projects inflation will remain around 3% by year-end, well above the 2% target, and believes current financial conditions are not sufficiently restrictive. The hawkish comments reinforce dollar strength, directly pressuring the euro. In the near term, if upcoming US data continue to support this stance, EUR/USD could face further downside; conversely, softer data might prompt markets to reassess the rate path, offering the euro some breathing room.

Focus Shifts to German Inflation and Eurozone Data

Market attention has quickly turned to this week's key European data releases. Germany's August inflation figures are due Monday, with consensus forecasts pointing to a rise in the headline HICP to 3.1% year-on-year from 2.8%, driven primarily by energy prices. The subsequent eurozone-wide inflation print on Tuesday will serve as a crucial test of regional inflation stickiness. Core inflation momentum is drawing particular scrutiny, as last week's French and Spanish data showed little impact from energy shocks, indicating relatively subdued underlying pressures.

The US non-farm payrolls report on Friday represents another key event risk. Danske Bank points out that Warsh's speech has already driven the dollar higher against both the euro and the yen, with persistent hawkish Fed rhetoric weighing on the euro. The bank expects the euro to likely trade within a 1.1550-1.1650 range in the short term, awaiting fresh direction from German and eurozone inflation data as well as the US employment report. Hotter European data could reinforce ECB policy expectations and support the euro, while tepid figures might extend the euro's weakness. Overall, transatlantic policy expectations and data divergences will dominate near-term price action.

Summary

Danske Bank attributes the recent EUR/USD decline to Warsh's hawkish remarks, with September hike probabilities now near a coin flip. Warsh reaffirmed the 2% target as "firm and fixed," while Hammack called for immediate rate action. Markets are now focused on German and eurozone inflation data alongside Friday's US jobs report. The euro remains under pressure from hawkish Fed rhetoric and is likely to consolidate within the 1.1550-1.1650 range in the near term.

At 15:11 Beijing time, EUR/USD was trading at 1.1586/87.