Warsh's Jackson Hole Speech Won't Stop Dollar Selling Trend

Citi analysts are downplaying expectations for Federal Reserve Chair Kevin Warsh's remarks at Jackson Hole, arguing that any hawkish surprise from him is unlikely to reverse the dollar's selling trend.

The bank's strategists say that risks to their view stem more from valuation and positioning than any fundamental case for a hawkish surprise.

Citi notes that there are three scenarios that could give Warsh incentive to sound hawkish, but none currently apply. The first would be insufficient hawkish premium already priced into the curve, with 10 basis points already factored in for September.

The bank's real rates model also points toward a dollar value of 1.18, assuming the Fed holds and other factors remain stable.