Yen Steadies as Fed Rate Cut Hopes Waver

Asian markets started the week quietly with Japan on holiday, while the yen hovered around 147.00 per dollar, signalling an end to the recent carry trade unwind. Fed fund futures showed a 49% chance of a half-point rate cut in September, down from last week's peak, as Fed officials pushed back on immediate cuts. US consumer price data, due Wednesday, could further influence market expectations for Federal Reserve policy changes.

Equities

The FTSE 100 ended Friday 0.3% higher, although it recorded its second consecutive weekly decline. Mid-cap stocks, represented by the FTSE 250, rose 0.6% on the day but were down 1.5% for the week. Homebuilders were among the top performers, with Bellway leading gains after issuing an optimistic outlook following the Bank of England's rate cut and proposed planning reforms by the new Labour government. In contrast, personal care, drugs, and grocery stocks saw declines, as did the luxury sector. Hargreaves Lansdown rose by 2.3% after the investment platform agreed to a £5.44 billion takeover by an international consortium.

Turning to the US markets, the S&P 500 closed up 0.5% on Friday, though it was nearly flat for the week after Monday's sharp selloff driven by recession fears and the unwinding of yen-funded carry trades. The technology sector provided the biggest boost to the index, with Take-Two Interactive Software rising 4.4% as it forecast growth in net bookings for fiscal years 2026 and 2027. Meanwhile, Expedia surged 10.2% after reporting a stronger-than-expected second-quarter profit.

The Dow Jones Industrial Average edged up 0.13%, and the Nasdaq Composite climbed 0.5%, although both indexes were down for the week.

Forex & Commodities

The US dollar eased from its one-week high on Friday, losing ground against major currencies, including the yen, which saw a drop after a three-day rebound. The dollar index dipped 0.136% to 103.14, reflecting a slight decrease in demand following stronger-than-expected US employment data. The Japanese yen fell 0.39% to 146.675 per dollar, on track for its first weekly rise in six weeks, while the Swiss franc hovered near a one-week low. Sterling rose to $1.2756, recovering from a recent low, while the euro remained flat at $1.0919.

In the commodities market, gold prices inched up 0.2% to $2,435.33 per ounce as investors awaited US consumer price index data due on Wednesday. This report is expected to influence the Federal Reserve’s next move, with markets pricing in a 54% chance of a 50-basis-point rate cut in September.

Oil prices gained over 3.5% for the week, with Brent crude settling at $79.66 a barrel and West Texas Intermediate rising to $76.84, supported by positive US economic data and continued geopolitical tensions in the Middle East. The weakening dollar also contributed to the oil price rise, making it cheaper for foreign buyers.