Revised Market View on International Finance: USD/JPY, AUD/USD, EUR/USD, GBP/USD

This article provides a revised market view on international finance covering currency pairs USD/JPY, AUD/USD, EUR/USD, and GBP/USD. It discusses the current trends, predictions, and strategies to make profits. The article also includes information on the economic conditions of the countries and their impact on the foreign exchange rates.

International Finance – Revised Market View
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Currency Pair: USD/JPY
The initial view about USD/JPY was that yen will decrease against US dollar and the
same was observed during trading in the week 6 to 8. Yen was trading at the levels of 111.36
and 111.37 during trading in week 6 to 8. Further, as of August 01, 2018 yen has been found to
be trading at 111.70 which shows that it has devalued over the period (Daily Fx, 2018). It was
anticipated that the adverse economic conditions in Japan will affect the foreign exchange rates
adversely. The adverse economic conditions in Japan will continue in the near future and hence
it could be expected that yen will decrease in future.
Figure 1: USD/JPY Trend (Daily Fx, 2018)
The chart above shows that yen is decreasing against USD in the month of August and it
is further expected to decrease in September 2018. There are deflationary conditions in Japan
and to overcome these conditions Bank of Japan set a target to bring inflation rate to 2%.
However, the recent announcement from the Bank of Japan to keep the interest rates at -0.10%
shows that Japan is in no hurry to overcome deflationary conditions (CNBC, 2018). If the
deflationary conditions prevail, yen will continue to decrease in future.
Strategy in week-11: Since yen is decreasing, thus, currency pair USD/Yen should be sold to
make profits
Currency Pair: AUD/USD
In the initial view, it was expected that AUD will increase against USD considering
prevailing economic stability in Australia. The economy of USA on the other hand is relatively
little volatile in the recent times. The reserve bank of Australia has maintained the rate of
interest at 1.50%, the GDP is growing at 3.1% and inflation rate is around 2% (CNBC, 2018).
On the other hand, USA is expected to have inflation rate of around 2.45%. Further, higher
interest rates are also expected to keep the GDP growth rate lower in USA. So, based on
interest parity theory and purchase power parity theory, it could be expected that AUD will
increase against USD in future (Fxstreet, 2018). As of September 13, 2018, AUD/USD is trading
at 0.7193; it is expected to reach to 0.7282 within next 1 month and further to reach at 0.7310
within next one quarter (Fxstreet, 2018).
Strategy in week-11: Since AUD is expected to increase in future, thus, currency pair
AUD/USD should be bought to make profits.
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Currency Pair: EUR/USD
The EUR/USD currency pair is highly volatile since decades. The volatility has been
observed to be even higher in the recent times due to big economic changes in Europe due to
Brexit. As of September 13, 2018, EUR/USD has been observed to be trading at 1.17 while in
the month of August 2018, it was trading at 1.16; so, the trend shows that EUR has decreased
against AUD over the period of one month (Poundsterlinglive, 2018).
The predictions for EUR/USD are that EUR will continue losing value against USD in the
upcoming quarter. The economy of USA is far stable as compared to the economy of Europe.
The interest rates in Europe have been decreased to minimal level of 0.00%. The decrease in
interest rates is to increase GDP rate and overcome the deflationary conditions in the country.
The EuroZone economic debt crisis has affected the European economy badly and it will take
time settle down the things and return on the stable growing track. Average gross domestic
product is 40% higher than in USA as compared to Europe which shows that the economy of
Europe is far behind (Irvin, 2018).
Strategy in week-11: Since EUR is expected to decrease in future, thus, currency pair
EUR/USD should be sold to make profits
Currency Pair: GBP/USD
The currency pair GBP/USD has been found to be trading at 1.31 as of September 2018
while it was trading at 1.29 in the month of August. So, the trend depicts that GBP has got
stronger against USD over the period of one month. The initial view given based on the
economic conditions of USA and UK was that GBP will depreciate against USD but it could not
hold true. In the month of September 2018, we can see that GBP has appreciated against USD.
It is true that in the recent times, the UK economy has been more volatile than the US economy
but the UK government is conscious about making the economy stable as quickly as possible.
The GDP growth in UK has been found to be 0.40% in the UK in April to June quarter.
The growth in GDP has laid to slight increase in the value of GBP however it is expected that in
the coming quarters, the GDP of UK is not likely to grow as fast as it was expected ( CNBC,
2018). The Bank of England has raised the interest rates to 0.75% which is a new high after
financial debt crisis. On the other hand, the GDP growth rate of USA in the second quarter has
been 4.1% which is the highest after 2014. It is further predicted that US economy, under the
leadership of Trump, will further growth at rapid pace. Therefore, it could be concluded that GBP
might increase in short term but in the long term, it is expected to decrease against US dollar
(Businessinsider, 2018).
Strategy in week-11: Since GBP is expected to decrease in future, thus, currency pair
GBP/USD should be sold to make profits.
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References
CNBC 2018, Bank of Japan keeps its monetary policy steady, removes time frame for price
goal, viewed on 13 September 2018 <https://www.cnbc.com/2018/04/26/bank-of-japan-on-
monetary-policy-interest-rate-and-cpi.html>
Daily Fx 2018, USD/JPY Chart, viewed on 13 September 2018 <https://www.dailyfx.com/usd-
jpy>
Fxstreet 2018, AUD/USD Forecast: Free falling and the end is not near, viewed on 13
September 2018 <https://www.fxstreet.com/analysis/aud-usd-forecast-free-falling-and-the-end-
is-not-near-201809071042>
CNBC 2018, Australia central bank holds interest rates steady at 1.5 percent, viewed on 13
September 2018 <https://www.cnbc.com/2018/08/07/australia-central-bank-holds-interest-rates-
steady-at-1point5-percent.html>
Poundsterlinglive 2018, On the 1st August 2018 the spot inter-bank market saw, viewed on 13
September 2018 <https://www.poundsterlinglive.com/best-exchange-rates/euro-to-us-dollar-
exchange-rate-on-2018-08-01>
Irvin G 2018, Europe vs. USA: Whose Economy Wins? viewed on 13 September 2018
<http://www.federalist-debate.org/index.php/current/item/300-europe-vs-usa-whose-economy-
wins>
Businessinsider 2018, Trump got a dynamite GDP number last quarter - and early signs point to
the next one being even better, viewed on 13 September 2018
<https://www.businessinsider.in/Trump-got-a-dynamite-GDP-number-last-quarter-and-early-
signs-point-to-the-next-one-being-even-better/articleshow/65250739.cms>
CNBC 2018, UK economy picks up speed in Q2 but underlying growth still weak, viewed on 13
September 2018, <https://www.cnbc.com/2018/08/10/uk-gdp-economy-picks-up-speed-in-q2-
but-underlying-growth-still-weak.html>
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