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The DXY Index’s recovery was short-lived and petered out slightly above 99, returning to the tight range of 98.5-99.0 following last week’s sell-off driven by rising US long bond yields. Although the US Treasury 30Y yield fell by 5.9 bps to 5.165% overnight, extending Monday’s 4.6 bps decline, market bets for a September 16 Fed hike have receded to 38% from 72% at the end of July. Brent crude prices slipped for a second day, brushing off Middle East geopolitical risks and the US-Canada tit-for-tat tariff spat. Iran and Oman discussed an “interim framework” to establish a “temporary joint maritime corridor.”
Investors now turn to today’s July PCE inflation report, which is expected to mirror the decline in CPI inflation a fortnight ago. Consensus looks for headline PCE to ease to 3.6% YoY from 3.7% YoY in June, with core PCE seen steady at 3.3%. On a monthly basis, headline is expected to rise 0.1% MoM (from -0.1%), with core up 0.2% (from 0.1%). The US Conference Board consumer confidence report was distinctly soft. The headline index fell to 89.4 in August, below the 90.2 consensus and July’s downwardly revised 90.2 (from 90.8). The US consumer has turned more cautious after following the surprise decline in July retail sales. They were also less confident about future employment prospects, consistent with July’s negative nonfarm payrolls.
Fed Chairman Kevin Warsh’s Jackson Hole keynote speech on Friday, August 28, remains the most important event this week. The symposium is viewed more as a credibility event rather than a rate-signalling one. The past two days’ decline in the 30Y yield offers only a reprieve, not a resolution. US Treasury Secretary Scott Bessent’s decision to expand long-bond buybacks seeks to calm markets. Still, it raises questions about the line between liquidity management and the Fed’s monetary policy, complicating Warsh’s earlier willingness to let markets tighten financial conditions through higher long yields. Overall, Warsh faces a difficult balancing act: defending the Fed’s independence and price-stability mandate while providing greater clarity on the Fed’s reaction function without abandoning his preference for less forward guidance.
Quote of the Day
“My brain is the key that sets me free.”
Harry Houdini
August 26 in history
In 1907, Harry Houdini escaped from chains underwater in 57 seconds at Aquatic Park in San Francisco, California.
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Related Insights
- USD Rates: Do not underestimate Bessent’s put 26 Aug 2026
- Hong Kong credit outperforms in Asia 25 Aug 2026
- India markets: Three themes dominate onshore price action 25 Aug 2026
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- USD Rates: Do not underestimate Bessent’s put 26 Aug 2026
- Hong Kong credit outperforms in Asia 25 Aug 2026
- India markets: Three themes dominate onshore price action 25 Aug 2026
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