Dollar/Yen Exchange Rate to be Influenced by US Interest Rate Cut Outlook

The dollar/yen exchange rate in the foreign exchange market is expected to continue to be influenced by the outlook for a US interest rate cut. The US employment data has been inconclusive, and the focus is likely to be on determining the pace of interest rate cuts this year, including at the September Federal Open Market Committee (FOMC) meeting, through the Consumer Price Index (CPI) and other data to be released on the 11th.

The market is also paying close attention to the first debate between Republican presidential candidate, former President Trump, and Democratic candidate, Vice President Harris, which is set to take place on the 11th.

The expected range for the dollar is 140-145 yen, while the euro is expected to trade between 1.09-1.13 dollars.

The US employment statistics released on the 6th showed that the number of non-farm payrolls was lower than expected, while the unemployment rate was 4.2%, as expected, down from 4.3% in the previous month. As a result, the probability of a rate cut in September as priced in by the US interest rate futures market is 0.25% at 70% and 0.5% at 30%, indicating a gap in market views.

Market attention is shifting towards the softening labor market, rather than inflation, which has been gradually subdued. However, depending on the CPI results, “if the view that the Federal Reserve will have to be wary of the risk of an economic slowdown strengthens, there is a possibility that significant interest rate cuts will continue after September,” according to a senior foreign bank executive. This could lead to the dollar being sold further.

Daniel Tobon, head of G10 currency strategy at Citibank, noted that market participants have already switched from buying to selling dollars in response to growing expectations of a rate cut. As a result, “participants’ attention is largely focused on the US growth outlook.”

Upcoming Events

• Debate between former President Trump and Vice President Harris on the 11th (Japan time)
• Release of Consumer Price Index (CPI) data on the 11th

Economic Indicator Forecast

• Dollar: 140-145 yen
• Euro: 1.09-1.13 dollars