The US dollar moved higher across the board after remarks by Kevin Warsh proved more hawkish than markets anticipated, with investors now pricing a 57% probability of a Federal Reserve rate hike in September, up from 33% before his speech.

Heading into the appearance, Warsh had cultivated the impression that he would offer little on interest rates or the economic outlook, which generated some criticism that he would be opaque. Instead, he repeatedly emphasized that the economy was running hot and that underlying inflation remains too hot. While he stopped short of saying the Federal Reserve would hike rates soon, he stated strongly that the Fed would meet its inflation target.

"We have work to do," he said, in what was widely read as a clear signal on the inflation fight.

The market has taken some time to digest just how hawkish the tone was. The repricing fed directly into dollar strength, with the greenback notably higher against major currencies, though the moves were measured rather than dramatic. The euro fell quickly to 1.1605 from 1.1643. Rate differentials are a key driver of currency markets: when the Fed is expected to tighten relative to other central banks, dollar-denominated assets tend to become more attractive, supporting the currency.

One factor capping the dollar's advance, according to market commentary, is a lingering skepticism among some traders that Warsh — given his ties to the Trump administration — would ultimately follow through with a hike. Others find that view difficult to square with the force of his comments and the security of his position.

The stronger dollar also weighed on gold, which reversed lower and traded down $33 after spiking to its highs of the day in what proved a misguided move ahead of Warsh's remarks. Gold, priced in dollars, typically comes under pressure when the US currency strengthens. Higher rate expectations can also weigh on non-yielding assets like gold, since rising short-term rates increase the opportunity cost of holding them.

The Federal Reserve's dual mandate covers price stability and maximum employment, and futures markets such as those tracked by CME Group are commonly used to gauge expectations for the central bank's policy moves. How subsequent economic data — particularly inflation and labor market reports — align with Warsh's characterization of an economy running hot will shape whether the September pricing holds or reverses.