I taxi-guide they should, in fact, lead, and in fact, when Mario Draghi gave his swan song (as central banker), with the last salvo of expansive monetary manoeuvre, in September, the market rates for households and businesses, responded positively with a sharp drop, to levels that mark new all-time lows. So why i rates on long-term government bonds deadline (10-year benchmark) have they recovered? Not only in Europe (Bund and BTp) but also in America (T-Bond). The unanimity of the rise suggests common reasons.
At least three can be identified: the simplest is to reverse the famous saying (Isaac Newton seems to have pronounced it!): what goes up, must come down. THE rates had come down too, and now they're correcting that "too much." The second reason is less mechanical: i lower geopolitical risks (the potential Brexit with an agreement and the equally potential agreement on China-US duties) comfort confidence and make those low rates less necessary, which were linked to the weakness of the economy. The third reason is less comforting than the second: fiscal policy is slightly expansionary in the euro area (although it could and should be more so) and in America the trillion-dollar maxi-deficits persist: these deficits must be financed, and public securities notice it.
The key rates have fallen in the latest round of central bank measures, but no further reductions are expected. Not in America, despite Trump's rude criticism of the Fed chairman (Powell rightly stated that the US economy does not need further rate cuts), nor in the Eurozone: after the monetary hawks' barrage of criticisms of the latest Draghi, Christine Lagarde he will want to keep the rudder on the course, but certainly without further stimulus measures. This means that the next rate move, even if very distant in time, will be upwards; and, given that 10-year long-term rates basically represent a forecast of short-term rates 10 years from now, it is understandable how this too may have contributed to the slight correction underway.
Are exchange rates contributing to the reduction of current account imbalances? Not really: the graph shows the trend of real effective exchange rates (against the currencies of all trading partners and taking into account inflation differentials) and these trends see strengthen the US currency (and therefore worsening price-competitiveness), which certainly does not help the reduction of the US trade deficit, that deficit that Trump wanted to reduce with tariffs and which is instead much higher than when the President was elected. And also the real depreciation of the euro it does not help to reduce the current surplus of the euro area, and especially of Germany.
The change in the second largest economy in the world (China is actually – and not from today – the first, in terms of purchasing power parity) is greatly affected by extra-economic factors. Even if the US Treasury did not accuse China of currency manipulation in its periodic report, few doubt that the exchange of the yuan does not suffer from a spontaneous manipulation of the foreign exchange markets, which these days are understandably mesmerized by the ups and downs of tariff negotiations and their surroundings. From this point of view, it is understood both the depreciation of the yuan in recent months (China responded to duties by letting its currency devalue) and the very recent retracement, which saw the exchange rate against the dollar strengthen from a maximum of 7,18 in September to values around 7 today (China does not want to complicate the prospects of an agreement).
