International Forex News - August 25

CICC Expects Warsh to Reiterate Inflation Risks and Keep Rate-Hike Options Open to Rebuild Credibility

August 25, News: A CICC research report said that this week's market focus will be the Jackson Hole meeting and remarks by Federal Reserve Chair Kevin Warsh. Warsh's earlier comments suggesting that “the market should raise rates for the Federal Reserve” failed to ease inflation concerns. Combined with ineffective intervention by the Treasury Department, policy credibility has been damaged and US Treasury yields have continued to rise.

CICC expects Warsh to reiterate inflation risks and keep the option of rate hikes open in order to rebuild credibility. However, he is also expected to maintain his longer-term views of reducing central bank intervention and lowering the frequency of communication. The report said that Warsh has not abandoned his policy concept of “balance-sheet reduction plus rate cuts,” but the assumptions underlying that approach are misaligned with current conditions and require coordination and clearer communication. If Warsh demonstrates sufficient policy flexibility, market concerns over US Treasuries may ease partially and support the US dollar. Otherwise, confidence may continue to erode, long-dated US Treasury yields may rise further, and the dollar may come under pressure.

Probability of the Federal Reserve Keeping Rates Unchanged in September Is 58.6%

August 25, News: According to CME FedWatch, the probability that the Federal Reserve will keep rates unchanged by September is 58.6%, while the probability of a cumulative 25-basis-point rate hike is 41.4%. By October, the probability of rates remaining unchanged is 43.0%, the probability of a cumulative 25-basis-point rate hike is 46.0%, and the probability of a cumulative 50-basis-point rate hike is 11.0%.