Given the instruction to convert standard decode before translate and translate the HTML to English while keeping the HTML format and not breaking lines, the translation result is: FX essential information - Exchange rate and interest rate differential

Last week,

・USD/JPY: The interest rate differential suggests the dollar/yen is headed toward 137 yen. Take long dollar positions.

・EUR/USD: The trend is euro weakness. However, there may not be a large change.

・GBP/USD: The trend is pound weakness. However, there may not be a large change.

・AUD/USD: The trend is likely AUD weakness. However, avoid taking positions until MACD cuts the signal and goes below 0.

USD/JPY was spot on. The asset slightly declined the week before last, but last week produced large gains.

EUR and GBP moved in the expected direction, but there were oddities (explained later) so they did not push too hard.

AUD: MACD cut the signal downward, so I lightly sold (trading sale). If the development seemed unlikely to match expectations, I intended to cut losses immediately. In the end, there was a small profit.

What was last week's market development? Up to now, there had been a gap between market expectations of when the Fed would start cutting rates and the Fed's stance. But with Powell's speech at Jackson Hole starting at 11 p.m. Japan time on the 26th, the market likely took precautions.

Powell likely believed he would settle the matter decisively at Jackson Hole, leaving no room for doubt.

Powell's statements a year ago were off the mark because they came amid the turmoil of his upcoming renomination (details omitted). This time, there is nothing to worry about.

This time, the points are: (1) the labor market is extremely tight and wage-push inflation is exerting pressure; (2) to ease this, further monetary tightening is necessary; (3) there is no basis to believe the tightening will end next year. It may be something like this?

And importantly, it seems he will speak in a way that shows he is serious about not letting inflation expectations rise, not just making a show of it.

Getting to the main topic. The relationship between the exchange rate and interest rate differentials, and future developments.

The relationship between the exchange rate and the interest rate differential is essential information for those watching FX rates.

While exchange rates are determined by supply and demand, a major factor moving the supply and demand for FX is the interest rate differential.

The relationship between exchange rates and interest rate differentials is the most important and fundamental aspect for FX.

It is necessary to continually keep track of that situation.

That relationship is not permanent. It often changes form.

We regularly follow information about that relationship.

Below is the standard set of graphs (USD/JPY, EUR/USD, GBP/USD, AUD/USD, EUR/JPY and their corresponding interest rate differentials) and their correlations.

This time, there is a possibility that the relationship between exchange rates and interest rate differentials has moved to something new, so this is the first installment (will be updated later).

(1) USD/JPY