Euro Drops Below 1.1600 as Warsh Puts Fed Rate Hikes Back on the Table

EUR/USD came under significant pressure on Friday, slipping toward 1.1595 at the time of writing, down roughly 0.48% on the day, with the current price trading around 1.16213. The main catalyst for the dollar's strength was the latest remarks from Federal Reserve Chair Warsh at the Jackson Hole symposium, which the market interpreted as putting the rate hike debate back on the agenda.

**Warsh's Speech Takes Center Stage**

Warsh's remarks were viewed as one of the core events of this week's Jackson Hole meeting. Market reports indicated that his tone was interpreted as hawkish, fueling dollar buying momentum. On the eurozone side, the final harmonized consumer price index for May rose 3.2% year-on-year and 0.1% month-on-month; core HICP was revised up to 2.6% from the previous estimate of 2.5%, the highest level in over a year, but this data failed to reverse the euro's decline.

**Technical and Data Factors Align**

From a technical perspective, EUR/USD accelerated lower after breaking below the 1.1650 support level, a position previously viewed as key short-term support. Some analysts noted that short-term momentum models could consider adding short positions near 1.1650, with a target around 1.1600. Going forward, market focus shifts to the release of the U.S. PCE price index, Germany's GfK consumer confidence index, and the European Central Bank meeting minutes, with these data points potentially further influencing the currency pair's direction.

**Rate Hike Expectations Rattle the FX Market**

According to CME FedWatch data, market attention to the probability of a Fed rate hike in September has risen notably, providing additional support for dollar bulls. However, changes in rate hike expectations are highly time-sensitive, and specific probability levels should be based on the latest data. Overall, short-term EUR/USD movements will remain driven by the relative shifts in U.S. and eurozone monetary policy expectations.