The recent rate decision in the US, which aligned with market expectations for a 25 basis points cut, has raised inflation forecasts significantly since September. This has reduced the future rate cut capacity to only 2 more cuts by 2025. As a result, the yields of long-term US Treasury bonds have surged, and the dollar has strengthened while the Bank of Japan maintained rates, leading to a rapid depreciation of the yen to a nearly five-month low.

It appears that this rate cut by the Federal Reserve aims to prevent excessive inflation, suggesting limited room for further rate cuts, impacting the market behaviors of bonds and currencies. The latest economic predictions from the Fed show a substantial increase in the real GDP forecast for 2024 to 2.5% and a further increase to 2.1% in the last quarter of 2025, indicating strong confidence in the US economy.

In a stable job market, a rise in inflation is reasonable, with the PCE price index expected to rise slightly by 0.1 percentage points to 2.4% in the fourth quarter of 2024. If inflation continues to escalate, market expectations for rate hikes may arise. The yen, meanwhile, continues to weaken under the current low-rate environment, with no clear intervention from the Japanese government, suggesting it may remain under pressure.

For investors holding treasury securities, hedging through CME's 10-year interest rate futures could be a strategy, while remaining updated on US rate trends via the FedWatch tool offered by CME is advisable.