Continuous Interest Rate Decrease leads weak USD

USDJPY Realtime Chart


USD on 108 Rate

In the last half of last week, USDJPY, which had previously been held at 108 yen, dropped down to 107 level due to ”dovish talk” of FOMC members like Williams in NY Fed and also due to JPY being bought as a result of US Navy defeating Iranian drone at the Strait of Hormuz in the Middle East. However, on the weekend, USD was bought back as the Nikkei stock filled the decline on the previous day, and also due to interest rate cut seemed to be postponed and as a result, USDJPY has been hovering around 108 rate.

Rate Cut Is Still The Core Of Discussion

Market interest will continue to be “the rate cut” towards the FOMC at the end of this month. It can not be denied that the US economy being decelerating, the focus remains if is really necessary to cut interest rates by 0.5%. The “University of Michigan Consumer Minds” announced last weekend outperformed market expectations. The announced economic news are still the result of “variably mixed”. Therefore, the views within the Fed are divided not only on the rate cut but also on the “rate cut per se”.

The Chicago Fed and Boston Fed presidents say there is no need for the rate cut as the US economy remaining strong. On the other hand, there are those in the Fed who support rate cutting, such as Chair Powell and Vice-Chair Clarida. This week’s 26th (Friday) will show the preliminary figures for US-April quarter GDP. The market forecast is “1.8%”, but the consensus is “poorly worse”, but depending on the result, “0.5% rate cut” observation may rise again. Therefore, even if it is decided that the “0.25%” rate cut was decided at the FOMC at the end of this month, it would be difficult for itself to become a cause of USD selling.

ECB Also Seems To Announce Message For Rate Cut

Also this week, the ECB opens a board of directors by taking the lead in Japan-US-Europe monetary policy meetings. The interest rate is not expected to be cut here, but the ECB is expected to issue any message for rate cuts, as the German manufacturing sector has not stopped deteriorating and there is no sign of economic recovery in the region as a whole. As early as the second half of the year, or until the latest in the next year, the negative spread of the policy rate again increases and resumption of asset purchase also seems to come into view. The EURUSD has been trying out the 1.12 break several times, but it has been pulled by the “flow of a weaker USD” across the market, and the 1.12 break has been avoided. The situation is like a “tug of war” between the weakening EUR due to its economic deterioration and selling USD.

Given the observed interest rate cut and the tension in Iran, I can expect the USD seems to be sold rather than being bought. So this week too, the stance of selling USD on a rally seems to be advantageous.

Economic Calendar of the week (UTC)