On Wednesday (August 26), news of a "temporary corridor" in the Strait of Hormuz weighed on crude oil prices, but Iran's hardline stance remained unchanged, meaning supply risks were only postponed, not eliminated. High yields on long-term US Treasury bonds and the Treasury's expanded repurchase operations failed to eliminate the term premium. The power struggle within the Federal Reserve continued: Cook's case was sent back for retrial, while Powell's retention limited White House maneuvering. Gold prices hovered near three-month highs awaiting the PCE, with market sentiment tense. Ahead of tonight's PCE release, traders are facing a triple narrative: the supply risks from the Holmos event have been temporarily priced in as easing; the US Treasury market is using term premiums to "tighten in place of the Fed"; and the White House's continued control over the Fed's policy team remains a concern. Warsh's Jackson Hole debut on Friday is likely to continue to be vague on the future. This article analyzes: which sentiments have already been priced in, which risks remain hidden dangers, and how US Treasuries, the dollar, gold, and crude oil are interacting.

Core Analysis

Federal Reserve personnel infighting: Policy independence becomes a trading variable

The Cook case has been remanded for further review, with the White House insisting on document flaws. If Cook is removed, will the pressure on the Federal Reserve to turn dovish increase? Powell's continued tenure as a governor until 2028 is the only definite appointment for Trump's remaining term, but it cannot be vacated in the short term. Jefferson's future is crucial; if he remains, Trump will have to choose a vice chairman from Bowman and Waller. The Atlanta vacancy has been postponed, giving Warsh room for review. The dollar needs to be factored in with politicized risks, and gold may see safe-haven buying.

Bond Market Self-Tightening: Warsh's Ambiguity Rises Interest Rate Hike Expectations

Long-term yields rose, prompting Warsh to claim that financial conditions had tightened, reducing pressure for rate hikes. However, the market reacted negatively, with the probability of a rate hike next month rising from 33% to 40%. Traders are more convinced that inflation remains above target. The Treasury's doubling of long-term repurchase operations is seen as an attempt to suppress yields, but its effect is not lasting. Long-term bonds also face competition from AI infrastructure bonds, resulting in high term premiums. US Treasury yields are likely to rise rather than fall, providing short-term support for the dollar, but fiscal intervention damages credit.

The "false easing" of the Hormuz agreement: the drop in crude oil prices is more like an emotional release.

Iran insists on keeping the Straits of Hormuz closed until the naval blockade is lifted, the war is permanently ended, and the memorandum is fulfilled. The temporary corridor and demining plan do not equate to reopening; the southern shipping lanes may remain closed, and merchant ships will be subject to monitoring. Tanker data shows that the number of barrels of crude oil leaving the Gulf of Oman has decreased by about two-thirds, indicating insufficient diversion of Saudi pipelines. Oil prices have already fallen due to earlier optimistic expectations, but a full recovery is unlikely. Traders must distinguish between "easing news" and "actual debottlenecking": the former puts downward pressure on oil prices, while the latter changes the inflationary path. A hidden risk is a breakdown in negotiations, leading to a rapid rebound in oil prices.

Gold and Forex on the Eve of PCE: High Levels Awaiting Judgement, Dollar Caught in the Middle

Gold prices rose about 7% to 8% in a week, supported by declining yields, falling oil prices easing inflation concerns, and the narrative of "devaluation trades" fueled by fiscal buybacks. There is a clear negative correlation between US Treasury yields and gold. If PCE is lower than expected, short-term interest rate expectations will be revised downwards, and gold prices may continue to benefit; if it is higher, US Treasuries will be under pressure, but gold's safe-haven buffer may be activated. The US dollar is caught between interest rate uncertainty and oil price risks: a softer PCE and a dovish Warsh policy would put pressure on the dollar; if the Hormuz tightens again, inflation expectations driven by oil prices could conversely pull the dollar down.

Trend Outlook

In the short term, the PCE and the Hormuz negotiations are taking turns dominating the market. If the PCE meets or falls short of expectations, US Treasury yields will decline, supporting gold prices. Oil prices may have downward momentum if trading remains "moderate," but a rapid rebound could be triggered by stringent conditions from Iran. In the medium term, the Fed personnel battle is unlikely to end soon, and the discount on policy independence may gradually be factored into the dollar. Treasury buybacks cannot solve the long-term debt supply issue, and the term premium continues to support the depreciation logic for gold. Overall sentiment is cautious, with data and geopolitical news alternating to amplify volatility.

Frequently Asked Questions

What are the actual implications of the Cook case for trading? If she is removed, the pressure on the Fed to adopt a dovish stance may increase, damaging the dollar's credibility and benefiting gold; however, the legal process is lengthy, and in the short term, it's more of an emotional disturbance. What does Warsh's lack of forward guidance mean? The market can only infer policy from bond market signals; ambiguity will amplify volatility, and interest rate hike expectations and long-term yields may frequently decouple. Will the temporary Hormuz corridor end oil price risks? No. Temporary passage does not equate to a full reopening; Iran's conditions are stringent, and southern routes may still be restricted. The drop in oil prices is more like a release of optimistic sentiment. How will tonight's PCE data affect gold and US Treasuries? If it's lower than expected, short-term interest rate expectations will be revised downwards, US Treasury yields will fall, and gold will benefit; if it's higher, US Treasuries will be under pressure, and gold's safe-haven properties may provide some buffer. Can Treasury repurchases suppress long-term yields? There will be short-term relief, but it's difficult to eliminate the term premium. Long-term bonds also face competition from corporate bond supply, and the market will still demand higher compensation.