The final week of August reshaped expectations across forex, oil, and cryptocurrency markets. Initially, investors aggressively sold the U.S. dollar and bought alternative assets, betting the Federal Reserve had completed its rate-hiking cycle. By Friday, however, the narrative reversed: U.S. inflation proved stickier than expected, and Fed Chair Kevin Warsh signaled that the fight against rising prices is not yet over.
Now, the U.S. labor market becomes the decisive test. At the same time, traders must factor in renewed escalation around Iran — already pushing Brent crude back above $90.
Warsh Restored Dollar Support
On Wednesday, the U.S. PCE Price Index — the Fed’s preferred inflation gauge — rose 0.2% month-on-month in July, while the annual rate held steady at 3.7%, slightly above the forecast of 3.6%. Core PCE stood at 3.3%. Both official BEA data and Reuters’ reporting confirm: inflation remains meaningfully above the Fed’s 2% target.
The pivotal event was Kevin Warsh’s speech at Jackson Hole. He stressed that the Fed must be confident in a sustained decline in inflation toward 2% — otherwise, more work lies ahead. His official remarks explicitly describe the labor market as near full employment and identify price pressures — not labor slack — as the central challenge.
Markets interpreted the speech as hawkish. The probability of a Fed rate hike in September jumped from 35.4% to 55.7%. Two-year Treasury yields climbed to 4.36%, and the U.S. Dollar Index rose 0.6% on Friday to 99.71. EUR/USD fell to roughly 1.1580, while USD/JPY breached 160.
Barclays revised its outlook and now forecasts two 25-basis-point hikes — in September and December. Wells Fargo also sees justification for at least one additional hike if current inflation trends persist.
However, the dollar’s long-term outlook is less clear-cut. Citi maintains a short position on the U.S. dollar, arguing that U.S. Treasury Department efforts to artificially cap long-end yields may eventually shift pressure from Treasuries onto the dollar itself.
Oil Dropped on Hormuz Hopes, Then Rebounded Sharply
Last week, Brent crude fell over 5%, closing Friday at $89.31 per barrel; WTI settled at $83.40. The decline reflected increased oil flows from the Persian Gulf and optimism about a potential agreement to restore shipping through the Strait of Hormuz.
Over the weekend, the scenario shifted again. The U.S. launched strikes on Iranian facilities on Larak Island; Iran retaliated with attacks on U.S. bases, and vessel traffic through the Strait of Hormuz declined once more. On Monday, Brent crude surged 2.5% to $90.31, while WTI rose to $85.23.
DBS now sees Brent trading in a range of $85–95 until clarity emerges on Hormuz navigation. Each new episode of military escalation raises the likelihood that full reopening of the strait will be delayed.
For forex markets, oil matters primarily via inflation: a sustained move toward $95–100 Brent strengthens the Fed’s case for higher rates — and supports the dollar.
Ruble Ends Week With Notable Weakening
The Russian ruble moved in the opposite direction. The Bank of Russia’s official USD/RUB rate rose to 85.60 RUB by 29 August — a weekly depreciation of ~3.2%.
This wasn’t driven solely by FX dynamics. Russia’s gasoline crisis intensified after several major refineries halted operations. According to Reuters, domestic gasoline production fell to roughly 80,000 tonnes per day by late August — well below demand of ~115,000 tonnes/day — covering only ~70% of internal needs. Russia is increasing fuel imports from Belarus and Asian countries.
This creates a dual pressure on the ruble. High global oil prices bolster export revenues, but rising fuel and equipment imports increase foreign currency demand. Simultaneously, surging gasoline prices feed domestic inflation — complicating prospects for a swift cut in the key policy rate.
Sberbank Chief Economist Alexander Isakov forecasts a USD/RUB rate of 86–88 RUB by end-2026 and a reduction in the key rate from the current 14% to ~13.5%. However, uncertainty surrounding refinery restarts remains a key risk to this outlook.
Bitcoin Fell From $81K Back to $77K
Early last week, Bitcoin was among the main beneficiaries of dollar weakness. On 25 August, BTC surpassed $80,000 and reached $81,238, marking ~28% growth for the month. Investors linked the rally to dollar softness, expanded U.S. Treasury buybacks, and renewed ETF-driven demand.
Warsh’s hawkish speech partially disrupted that logic. On Friday, Bitcoin dropped 3.3% to $77,414, as elevated rate expectations boosted the appeal of fixed-yield dollar-denominated assets.
By Monday morning, BTC held near $77,600, despite fresh Iran-related escalation — underscoring that Bitcoin now responds more strongly to dollar liquidity conditions and rate expectations than directly to geopolitical developments.
Forecasts remain wide-ranging. Standard Chartered maintains its year-end target of $100,000, while IG analyst Tony Sycamore sees $95,000–$100,000 achievable on a sustained upside breakout. Citi is significantly more cautious, setting its 12-month target at $82,000.
This Week: Labor Data Will Decide Everything
After Jackson Hole, markets lean toward a Fed rate hike — but Friday’s U.S. jobs report could reset the calculus entirely.
4 September, the Bureau of Labor Statistics (BLS) releases August employment data. Reuters polls point to ~45,000–50,000 net new jobs, following an unexpected loss of 23,000 in July; unemployment is expected near 4.1%. Variance across forecasts stems from differing economist samples and timing.
If job growth significantly exceeds expectations, the odds of a September hike rise — bullish for the dollar and potentially bearish for Bitcoin. Weak data would force the Fed into an uncomfortable trade-off between persistent inflation and labor market deterioration.
Prior to Friday, traders receive further signals. On Tuesday: U.S. JOLTS report and Eurozone inflation — forecast near 3.3%, supporting expectations for a European Central Bank rate hike. On Wednesday: Reserve Bank of New Zealand is widely expected to raise its policy rate to 2.75%, while the Bank of Canada is likely to hold steady. ISM manufacturing and services PMIs will also release during the week.
For oil, statistical data may matter less than geopolitics.
FAQ
Did the Fed signal a September rate hike at Jackson Hole?
Yes — Fed official Kevin Warsh emphasized that inflation remains above target and the labor market is near full employment, shifting market expectations: the probability of a September hike rose from 35.4% to 55.7%.
Why did oil prices rebound sharply after falling earlier in the week?
After initial optimism about Strait of Hormuz reopening, U.S. strikes on Iranian facilities and Iranian retaliation disrupted shipping, causing Brent crude to surge 2.5% to $90.31 by Monday.
How did Bitcoin react to the Jackson Hole developments?
Bitcoin fell 3.3% to $77,414 following Warsh’s hawkish speech, as rising rate expectations strengthened the dollar and reduced appeal for yield-sensitive assets like BTC.
