[Dollar/Yen Exchange Rate] Last Week's Market and This Week's Outlook
【Dollar/Yen Exchange Rate】Last week's trend and this week's outlook
Last week's dollar/yen exchange rate showed a dollar-selling, yen-buying pattern. The range was a narrow consolidation between 109.3 and 110.6 yen.
As U.S.-China trade negotiations became tense toward tariff increases on both sides, China emphasized three core concerns (permanent elimination of U.S. tariffs, alignment of China’s trade expansion with actual trade conditions, and non-disclosure of the agreement text). If the U.S. does not respond, negotiations could drag on, and U.S. stock markets have been selling off. Reports indicate the U.S. may respond differently if talks stall.
On the 20th, President Trump announced a 90-day export prohibition grace period for 68 Huawei-related entities from May 20 to August 19. On the 23rd, he stated that Huawei issues would be included in the U.S.-China trade talks. Semiconductor-related firms and U.S.-Japan companies dealing with Huawei have seen their stock prices swing wildly. Concerns about U.S.-China trade negotiations have widened, and U.S. Treasuries yields have fallen. The long-term benchmark U.S. 10-year yield and the short-term 2-year yield have fallen for three consecutive weeks due to caution over the talks.
On the weekend the 24th, the 2-year yield was 2.16%, the 5-year yield 2.12%, and the 10-year yield 2.32%. The inversion between the 2-year and 5-year yields persists, and both are lower than the 2.5% FF rate (the policy rate) expected the next day. The 2-year and 5-year yields appear oversold. If the U.S.-China trade war prolongs, uncertainty about global and U.S. economic downturn risks increases, making U.S. Treasuries an attractive buy.
The euro/dollar pair, which has the largest trading volume, saw the euro reaching a new year-to-date low at 1.1106 dollars on the 23rd, but over the week the trend was dollar-selling and euro-buying. Amid Brexit uncertainties, Prime Minister May is expected to resign in July, with Boris Johnson as the leading candidate who stated that even in a no-deal Brexit the U.K. would exit by October 31. This and other factors, including concerns about the euro area economy and the release of the ECB minutes on the 23rd showing a weaker-than-expected economic slowdown within ECB members, contributed to euro selling and dollar buying.
Eurozone manufacturing PMI for May fell slightly, adding to concerns about the economy’s outlook. Conversely, the U.S. May manufacturing PMI dropped to 50.6 near stagnation, and May services PMI fell to 50.9 near stagnation, triggering a shift to dollar selling and euro buying.
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