FX essential information: exchange rates and interest rate differentials 2022/06/24

Basic information essential for those watching exchange rates.

The market is determined by supply and demand, but the major factor moving supply and demand in the forex market is the interest rate differential.
The relationship between foreign exchange rates and interest rate differentials is the most important and fundamental for FX.
It is necessary to always keep track of the situation.
That relationship is not permanent. It often changes form.
We regularly follow information about this relationship.

The recent major change is the sense of global economic slowdown = observed slowdown in commodity demand = falling interest rates.
How does this affect the forex market?

The Bloomberg Industrial Metals Index, which consists of aluminum, copper, nickel and zinc, is a price index for industrial metals. It is softening rapidly. There are issues on the supply side as well, but the observation is that demand is shrinking even more. In other words, the market is seeing a sharp slowdown in the economy.

Inflation remains strong, but on the other hand, the sense of economic slowdown keeps interest rate trends from settling.

As described above, there have been changes in the movements of interest rates across countries, but how have exchange rates moved in that context?

Below, we publish the regular graphs (USD/JPY, EUR/USD, GBP/USD, AUD/USD and their respective correlations with interest rate differentials).