- The USD / JPY was under pressure this week and was unable to hold the handle 108.
- The FOMC minutes do not disrupt the status quo in the markets, negative rates are not on the cards.
The USD / JPY is currently trading at 107.45 in the daily range between 107.33 and 107.98, down 0.22% at the time of writing. The minutes of the Federal Open Market Committee were published, where the markets were looking for signs of negative rates among members.
Respondents to the open market desk surveys discussed at the April meeting saw little likelihood of the FOMC applying negative policy rates, the minutes said. The minutes also noted that “members also agreed that the coronavirus would weigh heavily on economic activity, employment and inflation in the short term, and posed considerable downside risks to the medium-term economic outlook term”.
Insights into American yields
Meanwhile, the USD / JPY was under pressure this week and could not hold on to the handle of 108, as the US dollar led to some safe investments in hopes that the global economy would begin to show signs of reprise. What is clear, however, is that the markets are not fully buying optimism. Gold and then the yen are solid. In addition, the bond market paints a thousand words that the FX cannot and everything is one way – pointing to negative returns.
While Fed Chairman Jerome Powell explained that the Fed is ready to use its “full range of tools” to support the economy and seeks to avoid the outlook for negative rates, plus 5-year US yields are close to zero, the more likely it is that the global recession will continue and that rates will indeed be heading towards zero. The bond market is revealing. The 5-year United States is trading at 0.318 / 0.357% today, against 1.69 at the start of the year.
With a combination of geopolitics and the impact of COVID-19 on the global economy, the risks are overwhelming. “There is no replacement for the dollar in many ways, which will make it difficult to justify an extended rollout in the near future, at least”, – so it is a double-edged sword.
Powell also said that the US Congress and the Federal Reserve may need to do more to support the economy, but have refused to participate in ongoing political discussions on a new emergency spending package, on which Republicans and Democrats disagree.
In other recent headlines, President Donald Trump said yesterday that he expects “ a very good third quarter ” in terms of GDP growth, in part because the United States is testing now more people. The US Congressional Budget Office has updated its economic projections and expects GDP to fall by 11% q / q in Q2 (38% in annualized terms). US Secretary of the Treasury Mnuchin said the Treasury is ready to “take losses” on its $ 500 billion bailout fund.
It is a mixed bag of all kinds, and for this reason the dollar is jerky and the markets buy the yen due to the risky yen function; and that’s because it generates current account surpluses.
USD / JPY levels