Over the past few months, major central banks have reached their respective inflection points in their monetary policies and begun shifting towards rate reduction policies. As global economies show signs of cooling inflation and a slowdown, central banks have moved their focus to easing monetary policies. The Swiss National Bank was the first to lower its benchmark interest rate in March. In June, the European Central Bank (ECB) followed, reducing its key interest rate by 0.25% for the first time in five years. Other central banks, including the Bank of Canada and the Bank of England (BOE), also lowered interest rates, with the BOE reducing rates by 0.25%, to 5%, marking its first cut in four years.

Conversely, earlier this year, the Bank of Japan (BOJ) abandoned its negative rate policy and raised its benchmark interest rate by 0.25% last week, from its previous level of 0%-0.1%.
Focusing on the US, the Federal Reserve (Fed) has been slower to adopt an easing policy, as expected. After the last FOMC meeting, Chairman Powell indicated that the committee believes the economy is nearing the point where it will be appropriate to reduce the policy rate, potentially as soon as the next meeting in September.

Last Friday’s release of US monthly unemployment figures, for July, caused a significant shift in market sentiment. The unemployment rate unexpectedly rose by 0.2%, from 4.1% to 4.3%, the highest level since 2021. Additionally, non-farm payroll figures were much lower than anticipated, with only 114,000 jobs added compared to the expected 175,000-190,000. The Fed’s aim for a "soft landing" after a period of inflation has always been to manage the transition from rate hikes to rate cuts, while pursuing its “dual mandate” goals of maximum employment and 2% consumer inflation.

The jobs report had an immediate negative impact on global equity markets. Investors are questioning whether the Fed is now behind the curve in lowering interest rates quickly enough to avoid a "hard landing" and a potential recession. From July 31st to midday August 6th, the Dow (DJIA) and S&P 500 declined by more than 5%, while the Nasdaq Composite fell by over 7.5%.

On August 5th, Japan's Nikkei experienced its largest single-day decline of -12.4% since 1987, driven by concerns about the US economy and the recent appreciation of the Japanese Yen (JPY) against the US Dollar (USD), due to rising Japanese interest rates. With the BOJ's recent 0.25% rate hike and anticipated US rate cuts in September, by 0.25%-0.50%, the interest rate gap between the two countries has tightened, and this trend is anticipated to continue.

The appreciation of JPY has also led to the unwinding of long-standing JPY carry trades, adding to USDJPY decline. Global investors have been borrowing JPY at low interest rates to invest in higher-yielding assets. As the value of JPY rises and the BOJ raises rates, the carry trades are being reversed, resulting in JPY buying due to increased margin calls on the borrowed currency.

To illustrate the decline in USDJPY over the past few weeks, below is a USDJPY spot FX graph (July 9th – August 6th), showing significant JPY appreciation against USD, using market data price points from TraditionData. During this period, USDJPY hit an intraday high of ~161.70 on July 10th and an intraday low of ~141.90 on August 5th, representing a ~12.25% decline over the month.

“The upcoming US Presidential Election, ongoing geopolitical tensions in the Middle East and Ukraine, and central banks' monetary policy decisions addressing changing economic conditions - these are all factors expected to add to global capital markets volatility for the remainder of 2024.” Sal Provenzano, FX Product Manager. 

The information contained herein is the property of Compagnie Financière Tradition S.A. or any of its subsidiaries (together “Tradition”). Any review, disclosure, dissemination, distribution or copying of the information, whether in full or in part, is strictly prohibited and only intended for confidential use by the designated recipient(s). All content is provided “as is”, without warranty of any kind, either express or implied, including without limitation, warranties of merchantability, fitness for a particular purpose, and non-infringement. Nothing herein constitutes investment advice or an offer, or solicitation of an offer to buy or sell any financial product. Any data consists of purely indicative prices and should not be relied upon to revalue any commercial positions held by any recipient. To the maximum extent of the law, Tradition specifically does not make any warranties or representations as to the appropriateness, quality, timeliness, accuracy or completeness of the information and shall not be liable for any inaccuracy, error, omission, interruption, timeliness, incompleteness, deletion, defect, failure of performance, alteration or use of any of the content displayed, regardless of cause, or for any damages resulting therefrom. Tradition services are not available to private or retail clients. This information is not intended for distribution to, or use by any person or entity in any jurisdiction or country where such distribution or use would be contrary to any applicable law or regulation. Copyright © Compagnie Financière Tradition S.A., 2023. Commercial in Confidence.

Recommended Content


Recommended Content

Editors’ Picks

EUR/USD accelerates losses to 1.0930 on stronger Dollar

EUR/USD accelerates losses to 1.0930 on stronger Dollar

The US Dollar's recovery regains extra impulse sending the US Dollar Index to fresh highs and relegating EUR/USD to navigate the area of daily troughs around 1.0930 in the latter part of Friday's session.

EUR/USD News
GBP/USD plummets to four-week lows near 1.2850

GBP/USD plummets to four-week lows near 1.2850

The US Dollar's rebound keep gathering steam and now sends GBP/USD to the area of multi-week lows in the 1.2850 region amid the broad-based pullback in the risk-associated universe.

GBP/USD News
Gold trades on the back foot, flirts with $3,000

Gold trades on the back foot, flirts with $3,000

Gold prices are accelerating their daily decline, steadily approaching the critical $3,000 per troy ounce mark as the Greenback's rebound gains extra momentum and US yields tighten their retracement.

Gold News
Can Maker break $1,450 hurdle as whales launch buying spree?

Can Maker break $1,450 hurdle as whales launch buying spree?

Maker holds steadily above $1,250 support as a whale scoops $1.21 million worth of MKR. Addresses with a 100k to 1 million MKR balance now account for 24.27% of Maker’s total supply. Maker battles a bear flag pattern as bulls gather for an epic weekend move.

Read more
Strategic implications of “Liberation Day”

Strategic implications of “Liberation Day”

Liberation Day in the United States came with extremely protectionist and inward-looking tariff policy aimed at just about all U.S. trading partners. In this report, we outline some of the more strategic implications of Liberation Day and developments we will be paying close attention to going forward.

Read more
The Best brokers to trade EUR/USD

The Best brokers to trade EUR/USD

SPONSORED Discover the top brokers for trading EUR/USD in 2025. Our list features brokers with competitive spreads, fast execution, and powerful platforms. Whether you're a beginner or an expert, find the right partner to navigate the dynamic Forex market.

Read More

Majors

Cryptocurrencies

Signatures

Best Brokers of 2025