Euro slips as Fed hawk Warsh takes center stage

EUR/USD traded at 1.16449 on Friday, down about 0.07% on the day, with thin liquidity as investors held off ahead of Fed Chair Warsh's speech at Jackson Hole.

**Hawkish expectations weigh on euro**

Warsh has long been viewed as a hawkish voice within the Fed, and his policy remarks could reinforce the dollar's yield advantage over the euro. JPMorgan's co-head of global FX strategy, Meera Chandan, said the real market driver has shifted from energy prices to the Fed's actual monetary policy response. Market data show U.S. nominal and real rates are both significantly higher than the euro zone's, and the U.S.-German yield gap has widened further after the Fed's hawkish pivot, underpinning the medium-term bearish case for EUR/USD.

**ECB tightening room limited**

In contrast to the Fed's hawkish tilt, the ECB's scope for further rate hikes is seen as constrained. Reports suggest Deutsche Bank and others expect the ECB to deliver just one more hike in September before ending its cycle. Although the ECB raised all three key rates by 25 basis points in June, it also cut its 2026 euro-area growth forecast to 0.8%, highlighting the drag on tightening from slowing growth. The divergence in monetary policy between the U.S. and Europe is unlikely to narrow soon, supporting the dollar's relative strength.

**Markets await speech for direction**

Analysts note that while Warsh is labeled a "balance-sheet hawk," he has recently signaled openness to rate cuts, arguing that tariff- and geopolitics-driven price pressures should be treated as transitory. If he maintains that dovish tilt in his Jackson Hole remarks, the euro could see a short-term reprieve; if he reiterates the priority of fighting inflation, EUR/USD may test further downside support. Until the speech lands, the pair is likely to stay in a narrow range.