Tonight, the United States will release the CPI data for last month, which is the last major economic data before the Federal Reserve's interest rate meeting.

What is particularly noteworthy is that although the market expects last month's CPI to decline further, indicating that U.S. inflation has started to gradually decrease from high levels, everyone still believes that the Fed will significantly raise interest rates by 75 basis points this time. The probability of a 75-point rate hike is currently over 90%.

Why can't the Fed stop raising rates even though inflation has decreased?

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In fact, as I have pointed out in previous articles, the U.S. interest rate hikes are not simply to control inflation; there are deeper intentions involved.

When inflation in the U.S. began to worsen last year, the Federal Reserve refused to raise rates and claimed that inflation was temporary.

By March of this year, the CPI had already reached 8.5%, and the U.S. only started its first interest rate hike, with an increase of just 25 basis points. It is clear that the argument for raising rates to control inflation does not hold water.

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However, things got out of hand after that. At each meeting, they raised rates, and the magnitude of the rate hikes increased from 25 basis points to 50 basis points and then to 75 basis points, with each increase getting larger.

Now that inflation in the U.S. has started to recede, the Federal Reserve has no intention of slowing down the pace of rate hikes.

Because it is evident that the Fed's true goal is to continuously push up the U.S. dollar index and strengthen the dollar through rapid, short-term rate hikes, thereby destroying the exchange rates of other countries. This is the real purpose of the United States initiating a financial war.Today's exchange rate appears to be a bit peculiar. Although the US Dollar Index has declined, opening at 108.32 and currently at 108.02, we are witnessing an increase in the offshore exchange market where the US Dollar has appreciated against the Chinese Yuan. It has risen from 6.9160 at the opening to the current 6.9271. Clearly, if the Federal Reserve ultimately announces a rate hike of 75 basis points in late September, it will exert a new downward pressure on the Chinese Yuan's exchange rate (see the chart below for the Chinese Yuan exchange rate).

Last week, the Chinese Yuan exchange rate nearly broke through the 7.0 mark. After the central bank urgently announced a reduction in the foreign exchange reserve requirement ratio, the exchange rate stabilized slightly. However, considering the upcoming actions of the Federal Reserve, there is still a possibility that the Chinese Yuan exchange rate could decline.

Nevertheless, despite the Federal Reserve's apparent intention to suppress the Chinese Yuan exchange rate, we do not need to be overly concerned, as there is not much room for a significant devaluation. In recent trading sessions, the A-share CSI 300 Index has shown a certain degree of increase.

Northbound capital has also shifted from net selling to net buying. Last Friday's net buying reached 14.8 billion yuan, and today's net buying is close to 4 billion yuan. The rise in the stock market and the inflow of funds indicate that overseas assets still favor Chinese Yuan assets and are willing to continue buying. Under these circumstances, the demand for the Chinese Yuan is sufficient to support its exchange rate.We review the depreciation of the Chinese yuan exchange rate in late April this year and find that although the exchange rate suddenly depreciated significantly at that time, A-shares actually began to bottom out at the end of April and subsequently experienced a substantial rise over the following two months.

After that, the yuan exchange rate also stopped falling and began to fluctuate in both directions.

Therefore, whether it was the last time or this time, the short-term depreciation of the yuan did not lead to a significant outflow of funds. On the contrary, a considerable amount of capital inflow occurred, supporting the yuan exchange rate.

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On the other hand, in terms of bonds, Chinese yuan-denominated bonds still have a significant advantage, which is the positive real yield.

For comparison, let's take a look at U.S. Treasury bonds.

Currently, the United States supports domestic consumption by continuously issuing Treasury bonds. However, investors holding U.S. Treasury bonds face negative returns, mainly due to the high inflation rate in the United States, which stands at 8.5%. The returns obtained from investing in U.S. Treasury bonds are insufficient to counteract the high inflation in the United States.

As a result, investors holding U.S. Treasury bonds are selling them off.

Last night, the yield on U.S. Treasury bonds rose again, indicating that the price of U.S. Treasury bonds is still falling, and the U.S. bond market is still dominated by sellers.

The People's Bank of China is also committed to continuously selling U.S. Treasury bonds to reduce the risks associated with foreign exchange reserves.The latest foreign exchange reserve data shows a decrease of over 10 billion USD on a month-on-month basis. In addition to the factor of the strengthening US dollar, the decline in the price of US Treasuries in the foreign exchange reserves is also an important factor.

However, based on the data provided by the US authorities, we also see that over the past seven months, we have been continuously selling US Treasuries, and the intensity of the selling has been unprecedented.

From the peak in 2013 to the end of last year, we only reduced our holdings of US Treasuries by about 300 billion in total. However, in just the past seven months, we have once again reduced our holdings of US Treasury bonds by more than 110 billion USD.

The reduction of US Treasuries is accelerating, and it should further accelerate.