Warsh's Speech Won't Reverse Dollar Selling Trend, Citi Warns

Citi analysts are not expecting Federal Reserve Chair Kevin Warsh's speech at Jackson Hole to reverse the dollar's selling trend. According to Citi, there is no fundamental case for a hawkish surprise in Warsh's remarks, and any reversal of fortunes would be more likely due to valuation or positioning rather than actual economic indicators.

Warsh has outlined several possible directions for his speech, including one that frames the 'big questions' facing policymakers. Citi strategists believe that the reality might fall somewhere in the middle, with remarks on medium-term themes currently being grappled with by the FOMC.

The analysts outlined three scenarios where Warsh could be incentivized to sound hawkish, but none of these currently apply. The first scenario would be if there was insufficient hawkish premium already priced into the curve, but Citi believes that 10 basis points for September is likely enough to satisfy Warsh from a financial conditions standpoint.

Overall, Citi remains bearish on the dollar heading into Jackson Hole, predicting a price of 1.18 based on its real rates model, which assumes the Fed holds and the ECB hikes once more while oil prices normalize gradually.