Dollar Weakens Against Yen as Fed Decision Looms

The US dollar hovered near 140.50 yen as markets brace for the Federal Reserve’s upcoming rate decision, with a 59% chance of a 50-basis-point cut now expected. The Bank of England is anticipated to hold rates steady at 5.0% later this week. Meanwhile, market sentiment remains cautious with holidays in Japan and upcoming inflation data in the UK.

Equities

The FTSE 100 rose 0.4%, supported by gains in precious metal mining stocks, which surged 19.5% over the week. Gold miners Fresnillo gained 5.7% and Endeavour Mining added 10.5% as gold prices reached new highs. However, the index’s overall gains were limited by a stronger pound, which impacted export-focused companies. Beverages stocks declined, with Diageo falling 1.4% after Italian peer Campari warned of a soft trading environment in the current quarter. Vodafone added 1.1% on positive sentiment that its merger with Three UK could win regulatory approval.

In the US, Wall Street’s major indices advanced as investors increased their bets on a larger interest rate cut by the Federal Reserve. The S&P 500 gained 0.54%, closing the week up 4.02%. The Nasdaq Composite rose 0.65%, posting a 5.95% weekly increase. The Dow Jones Industrial Average added 0.72%, gaining 2.60% for the week.

Adobe’s stock tumbled 8.5% after forecasting fourth-quarter earnings below analysts’ estimates. Boeing shares dropped 3.7% following a strike by West Coast factory workers who rejected a new contract proposal. Chinese e-commerce firm PDD Holdings fell 2.4% after the Biden administration signalled a potential clampdown on low-value shipments entering the US duty-free.

Uber saw its shares jump 6.4% after announcing a partnership with Alphabet’s Waymo to launch autonomous ride-hailing services in Austin and Atlanta. Meanwhile, smaller companies in the Russell 2000 index, which is more sensitive to interest rate changes, outperformed, rising 2.5% on Friday and 4.4% for the week, driven by renewed optimism about a larger rate cut.

Forex & Commodities

The US dollar dropped to its lowest point in nearly nine months against the Japanese yen, falling 0.66% to 140.855 yen. This decline was driven by growing expectations that the Federal Reserve could opt for a larger-than-expected 50-basis-point rate cut at its upcoming meeting. Reports from the Wall Street Journal and Financial Times further fuelled this speculation. Meanwhile, the euro edged up 0.08% against the dollar to $1.1083, supported by the European Central Bank's recent decision to cut interest rates by 25 basis points.

Gold prices hit a record high of $2,572.81 per ounce, boosted by safe-haven demand and the anticipation of US rate cuts. Analysts from Citi forecast that gold could reach $3,000 by mid-2025, while the World Gold Council reported continued inflows into gold exchange-traded funds for the fourth consecutive month in August.

Oil prices rose in Asian trading, with Brent crude futures climbing 0.5% to $71.99 per barrel, and US crude futures increasing by 0.7% to $69.14. Supply disruptions in the Gulf of Mexico, caused by Hurricane Francine, provided support to prices, though concerns remain over weak Chinese economic data and potential demand shortfalls.