Dollar holds gains ahead of Jackson Hole; won rises on BOK rate hike

The U.S. Dollar held close to a one-week high on Thursday as stronger-than-expected U.S. inflation reinforced expectations that the Federal Reserve could keep monetary policy restrictive. Traders are now turning their attention to the Jackson Hole symposium for clearer signals on the policy outlook. The U.S. Dollar Index traded near 99.14 after gaining around 0.3% in the previous session. ## Dollar supported by stronger U.S. inflation The latest U.S. Personal Consumption Expenditures Price Index showed that inflation remained elevated in July. Headline PCE inflation rose 3.7% year-on-year, unchanged from June but above the 3.6% market forecast. Prices also increased 0.2% month-on-month, keeping pressure on the Federal Reserve to maintain a relatively restrictive policy stance. Following the data, markets continued to price a meaningful probability of another Fed rate hike in September. Persistent inflation means the U.S. Dollar is likely to remain sensitive to movements in Treasury yields and changing expectations for Federal Reserve policy. ## Jackson Hole becomes the next major catalyst Attention is now focused on Federal Reserve Chair Kevin Warsh's speech at the Jackson Hole symposium. Investors will look for clues about whether the Fed is prepared to raise rates again, how policymakers view persistent inflation and how quickly monetary policy could change in the coming months. A hawkish message could support U.S. Treasury yields and strengthen the Dollar further. A more cautious tone could reduce rate-hike expectations and place renewed pressure on the Greenback. ## Japanese Yen little changed despite BoJ tightening expectations USD/JPY traded near 159.36 as the Japanese Yen showed limited movement against the U.S. Dollar. Bank of Japan Deputy Governor Ryozo Himino said timely rate increases could help prevent inflation from accelerating too sharply. However, he stopped short of clearly signalling that a rate hike would come at the September meeting. Despite the cautious comments, markets continued to assign a high probability to another Bank of Japan rate increase next month. If BoJ tightening expectations continue to strengthen while U.S. rate expectations soften, the Yen could gain additional support against the Dollar. ## South Korean won rises after Bank of Korea rate hike The South Korean won was one of the strongest Asian currencies after the Bank of Korea raised its benchmark interest rate by 25 basis points to 3.00%. The move marked the central bank's second consecutive rate increase and pushed USD/KRW lower as traders increased exposure to the won. The Bank of Korea also upgraded its 2026 economic growth forecast to 3.3% from 2.6%, while maintaining its inflation forecast at 2.7%. The stronger growth outlook helped reinforce expectations that South Korea's economy can absorb somewhat tighter monetary conditions. ## Further BOK tightening remains possible The Bank of Korea indicated that additional tightening could still be required, although future increases are likely to be gradual. Policymakers are expected to assess the impact of the latest back-to-back rate hikes before committing to another move. Updated projections pointed toward a year-end policy rate of around 3.25% as the most likely outcome. Higher interest-rate expectations can support the won by improving the return available on South Korean assets relative to lower-yielding alternatives. ## Australian Dollar remains supported by inflation data The Australian Dollar also strengthened, with AUD/USD trading around $0.718. The move followed hotter-than-expected Australian consumer inflation data, which revived expectations that the Reserve Bank of Australia could raise interest rates again later this year. Persistent inflation increases the likelihood that the RBA will need to maintain tighter policy for longer, helping support the Australian Dollar through a stronger yield outlook. ## Asian currencies trade mixed Currency performance across Asia remained mixed as traders balanced local central bank developments against strength in the U.S. Dollar. The South Korean won benefited directly from the Bank of Korea's rate increase, while the Australian Dollar remained supported by domestic inflation expectations. The Japanese Yen stayed relatively stable as traders waited for clearer guidance from the Bank of Japan. The Indian rupee weakened modestly against the U.S. Dollar. ## What forex traders should watch next The Jackson Hole symposium is likely to be the most important near-term catalyst for the U.S. Dollar and major currency pairs. Traders will closely watch Kevin Warsh's comments for guidance on inflation, interest rates and the possibility of another Federal Reserve hike. For USD/JPY, expectations surrounding the Bank of Japan's September meeting will remain important. For USD/KRW, markets will focus on whether the Bank of Korea follows its latest rate increase with another move before the end of the year. For AUD/USD, Australian inflation and Reserve Bank of Australia guidance will continue to influence expectations for further tightening. For now, the Dollar remains supported by persistent U.S. inflation, while higher interest-rate expectations in South Korea and Australia are helping selected Asian currencies outperform.