The Future Direction of Foreign Exchange Markets 第114回［田嶋智太郎］

Tomotaro Tajima Profile

Economist. President and CEO of Alfinaunts. Born in Tokyo in 1964. After graduating from Keio University, he switched careers following his time at Mitsubishi UFJ Securities. He analyzes and researches a wide range from finance and the economy to strategic corporate management, and even individual wealth formation and fund management. He serves as a lecturer at lectures, seminars, and training hosted by private companies, financial institutions, newspapers, local governments, and various business organizations, totalling about 150 lectures per year. He has written and contributed to many serialized pieces and comments in print media, including Weekly Gendai “Rules of Net Trading,” Examinina “Money Maestro Training Course.” He has also written columns on numerous websites about stocks, foreign exchange, etc., earning high marks as a stock and FX strategist. He has also authored the Home Economics section of the “Introduction to Modern Knowledge” in Free People Publications. After regular appearances on TV (TV Asahi “Yajiuma Plus,” BS Asahi “Sunday Online”) and radio (MBS “Tsuruga’s Asai-chi Radio”), he currently serves as a regular commentator on Nikkei CNBC “Market Wrap,” Daiwa Securities Information TV “Economy Marche,” etc. His major DVDs include “Very Easy to Understand: Tomotaro Tajima’s FX Introduction” and “Very Easy to Understand: Tomotaro Tajima’s FX Practical Technical Analysis.” His major books include “Wealth Review Manual” (Paaru Publishing), “FX Chart ‘Profit’ Equation” (Alchemix), “Why Can FX Make You Rich in Assets?” (Text), among many others. The latest issue is “How to Profit by Riding the Rising U.S. Economy” (Free People Publications).

※This article is a republication and republishing of an article from FX攻略.com October 2019 issue. Please note that the market information written in the body may differ from the current market.

Is there consistency between the current strength of the U.S. economy and the decision to cut rates?

In the previous update, I said in this column that “the market’s expectations for a U.S. rate cut at the end of June are somewhat excessive.” As expected, the overly optimistic expectations for rate cuts later were revised.

First, the various U.S. economic indicators released in July generally showed stronger results, clearly indicating that the U.S. economy is quite robust at present.

First of all, the surprise for the market was the June U.S. employment report (NFP). As is known, nonfarm payrolls rose by 224,000, and the market immediately reacted with dollar buying. The unemployment rate rose to 3.7% (from 3.6%), but this was due to an increase in the labor force participation rate.

June was also notable for the G20 Osaka Summit approaching in late June, where whether a U.S.-China summit would occur was a major focal point, and fears about the impact of trade frictions between the two countries were high. In the end, negotiations between the United States and China resumed/continued, and additional tariffs were delayed, though this was not reflected in the June jobs data.

Additionally, June U.S. retail sales, released later, rose 0.4% month-over-month, well above the expected 0.1% rise. Moreover, the core index excluding autos, gasoline, building materials, and foods services rose 0.7% month-over-month, and May's figure was upwardly revised from 0.4% to 0.6%.

Furthermore, the June Consumer Price Index and Producer Price Index released around the same time also surpassed market expectations, and most notably, the Philadelphia Fed manufacturing index released on July 18 came in at 21.8, far exceeding the expected 5.0 and the previous 0.3.

Of course, the U.S. Federal Reserve (Fed) has long argued that it must “act preemptively to cut rates,” and in that sense the current economy being somewhat stronger does not necessarily change the initial policy. Still, given the alignment of policy with the data that informs it, one might think the reasoning is somewhat stretched.

When Fed Chair Powell testified before Congress on July 10, he effectively signaled a July rate cut by arguing that “inflationary pressures have remained restrained.” It seems this should be reconsidered in light of today’s digital economy advancements.

Additionally, on July 16, San Francisco Fed President Daly stated that it is not yet clear whether late July is the right timing for a rate cut and that it is too early to determine whether the U.S. economy will face headwinds strong enough to halt growth. Daly is an influential voice, even though San Francisco does not have voting rights this year. Daly has long been a core member of the research team of the SF Fed, and his analyses and statements should not be dismissed.