Yen Strengthens as Fed Faces 50bps Cut Decision

Reports from the Financial Times and Wall Street Journal suggest the Federal Reserve may consider a larger-than-expected 50bps rate cut, sending the dollar lower against the yen and euro. Gold hit a new all-time high at $2,570, while the Hang Seng rose over 1%, contrasting with declines in Japan’s Nikkei and South Korean stocks due to yen strength. European markets are expected to open higher, with STOXX 50 futures pointing up 0.3%.

Equities

The FTSE 100 climbed 0.6%, reaching its highest point in over a week, boosted by expectations of an interest rate cut from the US Federal Reserve. Precious metal miners led the charge, rising 3.2%, driven by record-high gold prices. Industrial metal miners followed, gaining 2.4% as copper prices hit a near two-week high due to firm demand from China. Diageo shares rose 3% after BofA Global Research upgraded its rating and price target, while homebuilders added 1.9% amid positive property sales forecasts. Fevertree Drinks dropped 11.6% after cutting its annual revenue growth forecast, and pharmaceutical and biotech stocks fell 1.8%, making them the biggest sectoral losers.

In the US, the Dow Jones Industrial Average rose 0.58%, the S&P 500 gained 0.75%, and the Nasdaq climbed 1%, buoyed by tech stocks. Investors focussed on next week's anticipated Federal Reserve rate cut. Gold surged to an all-time high, with spot gold adding 1.85% to $2,558 an ounce. In energy markets, US crude jumped 2.72% to $69.14 per barrel, and Brent rose 2.21% to $72.17, driven by supply concerns due to Hurricane Francine.

In bond markets, US Treasury yields inched higher. The 2-year yield rose 1.2 basis points to 3.66%, and the 10-year yield increased by 3 basis points to 3.68%. The dollar weakened, with the dollar index down 0.52%, while the euro strengthened, rising 0.54% to $1.1071.

The ECB's decision to cut rates by 25 basis points, its second cut since June, also played a role in market movements. The US is now firmly in the spotlight, with attention turning to the Fed's decision next Wednesday, where a modest 25-basis-point cut is widely expected.

Forex & Commodities

The US dollar weakened on Friday, with the yen reaching its highest point this year, trading at 140.965 per dollar, as investors anticipated a significant rate cut from the Federal Reserve next week. The euro also gained, rising 0.11% to $1.1086 following a rate cut by the European Central Bank on Thursday, leaving the dollar index at a week’s low of 101.05.

Gold surged more than 1%, hitting a record high at $2,554.05 per ounce as traders bet on a Fed rate cut, with US gold futures settling at $2,580.60. Palladium also rose, gaining 4.1% to $1,050 per ounce, its highest level in over two months amid concerns about Russian supply constraints.

Oil prices rose sharply, with US crude up 2.5% to $68.97 per barrel and Brent crude climbing 1.9% to $71.97 per barrel. Hurricane Francine disrupted over 40% of oil production in the Gulf of Mexico, though analysts warned that the storm's impact on output could be short-lived.