Ringgit Weakens Ahead of Fed Chair's Jackson Hole Speech as Inflation Data Fuels Rate Hike Expectations

KUALA LUMPUR – The ringgit ended lower against the greenback on Thursday, easing to 4.0305/0350 from Wednesday's close of 4.0240/0280, as cautious sentiment prevailed ahead of the U.S. Federal Reserve's Jackson Hole symposium, according to Bernama.

Traders are scrutinizing Fed Chair Kevin Warsh's first address at the symposium, scheduled for Friday, for clues on the central bank's policy path ahead of the Federal Open Market Committee meeting on Sept. 15-16, said Bank Muamalat Malaysia Bhd chief economist Dr. Mohd Afzanizam Abdul Rashid, as reported by Bernama.

The cautious mood was reinforced by a firmer-than-expected U.S. core inflation reading, which revived expectations of a Fed rate hike, particularly in December, said Quintex Intel global strategist Stephen Innes, also reported by Bernama. Innes noted the shift was modest but sufficient to weigh on the ringgit in the current low-volatility foreign exchange market.

**Inflation Data Muddies Policy Outlook**

Data from the U.S. Bureau of Economic Analysis on Aug. 26 showed the Personal Consumption Expenditure price index rose 3.70% year-on-year in July, slightly above market expectations, according to the Nasdaq article. The core PCE index, which excludes food and energy, increased 3.30% on a year-on-year basis, matching forecasts but remaining above the Fed's target.

The hotter-than-expected reading dampened some of the optimism generated by a benign consumer inflation report earlier this month and muddied the policy outlook, as reported in the Straits Times article. Two Fed officials on Aug. 27 shared ongoing concerns about the inflation outlook, reiterating their stance on rate hikes to combat price pressures, according to that same source.

Market pricing reflects the uncertainty. As of Wednesday, investors were betting on a 34.10% chance of a 25-basis-point interest rate hike at the Sept. 15-16 FOMC meeting, while the odds on rates being held at the current level stood at 65.90%, according to the CME Group's FedWatch Tool, cited in the Nasdaq article.

**Focus on Warsh's Tone and Communication Style**

Warsh's speech at the Jackson Hole symposium, which runs from Aug. 27-29, is the main event for currency markets, according to Innes. The tone will likely determine whether the U.S. dollar extends its recent rebound or loses momentum, he said.

The new Fed chair has brought a sharp change in how the central bank communicates by saying much less than his predecessors about the economy and inflation, as reported in the Fast Company summary. Warsh is determined not to offer "forward guidance" about future Fed moves, but economists and traders are thirsting for concrete engagement with the essential debates, according to the Axios summary.

Bank Muamalat's Afzanizam said it would be interesting to see how Warsh addresses the interplay between monetary and fiscal policies. The U.S. national debt has crossed $40 trillion for the first time, while the Treasury recently announced plans to increase buybacks of long-term government debt, moves seen as attempts to lower yields on 10-year notes. Afzanizam said rising Treasury yields result in higher debt servicing costs.

The economist suggested the current environment could lead the Fed to maintain the status quo on the prevailing Fed Funds Rate level of 3.50-3.75%, which would keep the ringgit well supported in the near term.

**Broader Market Context**

U.S. stocks rallied on Aug. 27, with the tech-heavy Nasdaq outperforming after chip maker Nvidia's strong forecast reaffirmed the AI boom, according to the Straits Times article. However, market headwinds remain, with higher interest rates, geopolitical tensions and global trade acting as drags on other sectors. Gold prices edged higher on Wednesday ahead of Warsh's speech, the Nasdaq article noted.

Against a basket of major currencies, the ringgit ended higher on Thursday. It gained against the Japanese yen to 2.5274/5304, increased against the British pound to 5.4714/4775, and appreciated against the euro to 4.6919/6971, Bernama reported.

The local note traded mixed against regional currencies. It edged down against the Singapore dollar to 3.1686/1724 and slipped versus the Indonesian rupiah to 227.1/227.5. It appreciated against the Philippine peso to 6.51/6.53 and improved against the Thai baht to 12.2534/2715.