【TMGM Financial Recap】 Wash's Hawkish Stance: The Probability Of A Rate Hike In September Soared From 35% Overnight To Nearly 60%! The US Dollar Posted Its Largest Single-Day Gain In Two And A Half Months, While The Offshore RMB Fell Below 6.73 Intraday

This statement directly rewrote the market's pricing of interest rate paths for the coming year. CME FedWatch shows the probability of a rate hike in September jumped from about 36% before the speech to 58%, and the probability of a December hike is as high as 89%; The two-year U.S. Treasury yield jumped about 12 basis points in a single day, marking its largest gain in over two months; The US dollar index closed up 0.56% to around 99.70, marking its largest single-day gain in two and a half months; Spot gold plunged nearly 3%, falling below $4,500; The offshore RMB fell below 6.73 intraday for the first time in a week.

On His 100th Day In Office, Wash's "Most Hawkish Report Card"

This speech, titled "Our Time," was more hawkish than most traders expected. Xinhua Finance summarized it as "by far the closest Wash's statement to admitting that a rate hike might be necessary," and Reuters interpreted it in the same way. The core criterion is simple: "We must be confident that underlying inflation is moving toward our target, and clearly and quickly enough. Otherwise, we still have work to do." ”¹

Supporting this judgment is a set of less optimistic inflation data. In July, the PCE price index rose 3.7% year-on-year, with a six-month annualized increase of 4.1%. The latter is higher than the former, indicating that inflation momentum is not slowing down but accumulating. A more detailed breakdown is that about 54% of items in the PCE goods and services basket have annual growth rates exceeding 3%, compared to only 32% in the previous twenty years of the pandemic. This marks the 65th consecutive month of U.S. inflation above the 2% target, and Wash has unusually placed the responsibility on the central bank itself

If inflation data gives him a reason to "do something," financial conditions data gives him room to "do it." Corporate capital expenditure changed about 9% over four quarters, the highest since 2021; S&P 500 component stocks saw profits grow by more than 20% over the past year; Real consumer spending grew over 2% over four quarters; Unemployment rate is 4.1%, and initial jobless claims are near decades-low levels. Walsh concludes: "I find it hard to describe the overall financial environment as restrictive." "The economy hasn't stalled, financial conditions haven't tightened, and inflation remains high—when all three happen together, rate hikes are no longer out of debate."

But he stubbornly refused to answer "when it will be raised." Walsh gave no hint at the September 16 FOMC meeting, nor did he provide the policy "reaction function" the market expects, leaving only the phrase "I stand here today, committed to following a discipline, not a single decision." This continues his pursuit of a "quieter Fed" since taking office, breaking the tradition of Fed chairs signaling interest rates at Jackson Hole for over twenty years. JPMorgan Asset Management's Priya Misra called the speech a "final correction" to the July "communication misstep," while DWS fixed income head Catrambone bluntly called it a "180-degree reversal."

A Chain Reaction From Interest Rate Futures To Gold

The market didn't wait for GPS—it moved first. CME FedWatch shows the probability of a rate hike in September rose from about 36% before the speech to 58%, and to 89% in December; According to Xinhua Finance, the probability of a rate hike in September has already reached 50%. Barclays and Société Générale adjusted their forecasts that day, expecting 25 basis points hikes each in September and December, with at least one rate hike within the year almost fully priced in by the futures market

The interest rate market's reaction is the most informative. The two-year Treasury yield, most sensitive to policy rates, jumped about 12 basis points in a single day to around 4.35%, marking the largest single-day gain in over two months and the biggest volatility triggered by Jackson Hole's speech since 2010. But what really stands out is the silence on the long side: the 10-year yield rose about 4 basis points to 4.714%, and the 30-year yield moved just 1.46 basis points to 5.206%. Short-term surges, long-term yields hold steady, flattening the curve—this is a textbook rate hike trade; Another layer of holding the long end is that if the market believes the Fed is serious this time, it actually means long-term inflation is controllable, and holding ultra-long-term bonds does not require additional inflation compensation.

The next link in the transmission chain is commodities. Spot gold plunged after the speech, hitting a one-week low of $4,444.80 intraday, closing down 2.95% at $4,453.67, ending a three-day winning streak; COMEX gold futures fell 3.43%, falling below the $4,500 mark. Independent analyst Tai Wong commented on breaking the mechanism: "Walsh confirmed inflation has not significantly slowed, which severely impacted gold." "Gold does not yield interest; when dollar interest rate expectations rise, the opportunity cost of holding it rises accordingly, and safe-haven assets are defeated by interest rate logic. This is the most counterintuitive scene in this round of adjustment." In early Asian trading on Monday, gold prices opened lower and briefly hit a low of $4,431.52, before recovering to around $4,450 under support from buying on dips. U.S. stocks were relatively mildly impacted: the S&P 500 fell 0.25%, the Nasdaq dropped 0.52%, but the most rate-sensitive high-valuation chip stocks led the decline, with the Philadelphia Semiconductor Index down 3.5% and Nvidia giving back nearly half of its earnings gains

The Dollar Is Approaching 10.0

The US dollar index closed up 0.56% at 99.70, marking its largest single-day gain since June 17, and touched an intraday high of 99.727, more than a week high; for the week, it rose nearly 0.9%, marking its best weekly performance in 10 weeks. The driver of this round of strength is not risk aversion, but the interest rate differential—the rising probability of rate hikes has directly raised the expected return on dollar assets, and global capital repricing has left the clearest mark on exchange rates.

Non-US currencies are under pressure across the board: EUR/USD fell 0.59% to 1.1582, hitting a new low since August 19 and ending a four-week winning streak; USD/JPY rose 0.45% to 160.20, with JPY falling below the 160 mark. In early Asian trading on Monday, the US dollar index consolidated near 99.6. Perhaps just one better-than-expected data mark is just one day away from the 100-point mark.

In this round of strong dollar surges, the RMB's decline needs to be viewed as a reference group. The offshore RMB closed at 6.7308 in New York last Friday, down 114 points from Thursday, breaking below 6.73 for the first time in a week; the onshore spot closed at 6.7204 at 16:30 and at 6.7307 at 23:30 in the night session. During the same period, the euro fell 0.59% and the yen fell 0.45%, with the RMB's "loss" measured in hundreds of points, showing significantly smaller volatility

This resilience is supported by fundamentals. Over the past 12 months, the USD/CNY has been falling from above 7.14, with the RMB appreciating about 5.5% and currently trading at the strongest end of its one-year range. Daily Economic News analysis points out that the recent strength of the RMB is built on two pillars: the low levels of the US dollar index and the trade surplus. The dollar's rebound after Walsh's speech only caused a "slight weakening."

The policy stance can also be seen from the details. This morning, the RMB central parity rate against the US dollar was 6.7828, a depreciation of only 17 basis points; while the spot exchange rate hovered around 6.72-6.73, clearly stronger than the central parity, indicating that the market's settlement power remains strong. The symbolic adjustment of the central parity rate signals a "non-active depreciation" stance. In other words, 6.73 is more like a test level than a starting point for a trend; the real variable lies in how far the dollar's rebound can go

The Next Three Observation Points

The first is the US August nonfarm payroll release this Friday (September 4), marking the first major test since Walsh's speech. The background data is not on the bulls' side: the preliminary annual benchmark revision released last Friday shows that nonfarm payrolls for the year ending March 2026 will be revised down by 79,000, while the market had originally expected an upward revision of 183,000, with the private sector downward by 178,000. For reference, the preliminary revision for the same period last year was revised down by as much as 911,000, with the final confirmation at 862,000. The combination of employment cooling and a 3.7% PCE creates a dilemma for Walsh: tightening anti-inflation demands while the labor market demands patience. If the nonfarm payrolls continue to weaken, the probability of a rate hike in September may fall in sync with the US dollar index, temporarily easing external pressure on the RMB; If the rate gap is stronger than expected, the spread narrative will be further strengthened.

The second is the FOMC meeting on September 16. The third is anchored to the RMB itself. In the short term, the RMB exchange rate is priced by the US dollar; In the medium term, the direction will be determined by the current account surplus and foreign exchange settlement power. As long as the surplus pillar remains strong and the central parity rate remains continuous, a one-sided rally below 6.73 is unlikely. Based on various analyses, before the non-farm payroll implementation on Friday, the market is very likely to maintain a "hawkish pricing and cautious positioning" pattern.