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Calm has returned to U.S. financial markets, with fears of credit-tightening by the Federal Reserve fading.

Market participants were relieved last week that a survey of purchasing managers in the service sector offered fresh evidence of slowing growth in the U.S. economy.

Jobs data and other weak economic figures also helped ease fears that the Fed’s policy-setting Federal Open Market Committee will make additional interest rate hikes later this month.

Last month, the Fed raised key interest rates by 50 basis points, a steeper hike than the previous four rounds of increases. The favorable economic figures have fueled speculation that additional interest rate hikes are not in the offing.

Still, it remains anybody’s guess whether the Fed’s current monetary policy is effective enough to engineer a soft landing in which the U.S. economy will slow enough to keep inflation in check.

Given signs of slower economic growth and falling long-term interest rates in the U.S., a solid upswing of the dollar in the near term appears unlikely. With fears of inflation fading, U.S. share prices may move higher on a growing wave of buying by domestic investors. But a quick pickup in an inflow of foreign capital into the U.S. markets appears unlikely.

The euro has rebounded against the dollar and now appears poised to recoup much of its recent losses. European investors are switching away from U.S. financial markets and back into their home markets.

When it comes to economic recovery in Japan, foreign investors remain skeptical. The recent volatility of the Tokyo stock market has frightened them away. Now that no lasting decline in Japanese stock prices appears to be in the offing, however, pessimism about prospects for the yen is beginning to run low, though foreign investors remain cautious on equity investment in Japan.

Although the yen’s topside is capped by direct investment overseas by Japanese companies, judging from narrowing gaps in economic growth and long-term interest rates between Japan and the U.S., the medium-term direction in the dollar’s value relative to the yen appears to be downward.