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(the author of this article is zhou hao, chief economist of guotai junan international)

the us cpi in august slightly exceeded expectations, especially the core inflation rate that the market is more concerned about reached 0.3% (the market expected 0.2%), which almost means that the probability of a 50 basis point interest rate cut this month is off the table. after the release of the cpi data, the market also adjusted its expectations for the number of interest rate cuts this year. the market currently expects four interest rate cuts this year (i.e. 100 basis points), which means that if the interest rate cut this month is 25 basis points, then at the next two fomc meetings (in november and december respectively), the federal reserve will have the possibility of a 50 basis point interest rate cut. future economic data and changes in the capital market will continue to disturb interest rate cut transactions, but to some extent, the risk reward of interest rate cut transactions also seems to be declining.

today we continue to discuss seasonality. the following chart shows the monthly changes in the 10-year us treasury bond interest rate over the past 10 years (2015-2024). in this chart, we found an interesting phenomenon, that is, in the past 10 years, the 10-year us treasury bond interest rate has not fallen for five consecutive months. if the 10-year us treasury bond interest rate falls this month, it will break this pattern of the past 10 years.

another seasonal factor worth noting is the us dollar exchange rate. as we pointed out in our previous report, the us dollar exchange rate tends to be stronger in september. since the main reason for the current round of us dollar exchange rate decline is the interest rate cut transaction, it is a bit premature to hastily judge whether this transaction is a spent force before the interest rate cut occurs. however, judging from the recent trend of the us dollar exchange rate, the us dollar index no longer follows the further decline of the 10-year us treasury bond interest rate, which seems to mean that foreign exchange traders have also begun to feel that the chances of further shorting the us dollar have begun to decline.

we can observe this from the perspective of the euro. we compare the exchange rate of the euro against the us dollar and the interest rate spread between 10-year us treasury bonds and german government bonds and find that although the interest rate spread between the us and europe has narrowed significantly (due to the faster decline in us treasury bond interest rates), the euro is still a bit too strong from the exchange rate level predicted by the interest rate spread. the interest rate spread predicts that the euro exchange rate is around 1.09, but the strongest level of the euro this round is close to 1.12.

of course, seasonality does not mean that the market will always run on a predetermined track. it is just that the market will always have a risk-return ratio at any time. at this point in time, the risk-reward of interest rate cut trading may be worth considering by traders.

(this article only represents the author's personal views)