Sterling Hits One-Month High as Rate Cut Speculation Grows

Sterling reached a one-month high at $1.2953, supported by expectations of a dovish stance from the Federal Reserve ahead of Jerome Powell's speech at Jackson Hole. S&P 500 and Nasdaq futures rose 0.2%, while Japan's Nikkei remained flat after a strong rally last week. The Riksbank is fully priced for a rate cut on Tuesday, with debate over a 25 or 50 basis point reduction.

Equities

On Friday the FTSE 100 slipped 0.4%, making it the weakest performer among major European indices. Despite the modest decline, the index remains close to its two-week high, buoyed by strong retail sales in July, which rose 0.5%, aligning with forecasts. However, this wasn’t enough to lift the overall market sentiment in London, where other factors seemed to weigh on performance.

In contrast, across the Atlantic, US indices posted modest gains, capping off their best weekly performance of the year. The S&P 500 edged up 0.20% to 5,554.25, while the Nasdaq rose 0.21% to 17,631.72, both marking their seventh consecutive session of gains. The Dow Jones also inched higher by 0.24%, closing at 40,659.76.

Among US companies, chip-making equipment firm Applied Materials saw a decline of 1.9%, reversing earlier gains despite a stronger-than-expected forecast for its fourth-quarter revenue. In contrast, Amcor, the packaging giant, saw its US-listed shares fall by 3.7% following a larger-than-expected drop in fourth-quarter sales.

The European markets also showed strength, with the pan-European STOXX 600 rising 0.3% on the day and logging its best weekly gain since May. Italy’s FTSE MIB stood out, gaining 2.2%, while Germany’s DAX reached a new record high. Bayer’s stock surged 10.4% after the company secured a legal victory regarding its Roundup weed killer, which was linked to cancer claims. Meanwhile, UBS rose 0.7% following its decision to liquidate a $2 billion real estate fund acquired from Credit Suisse.

Investors now turn their focus to the upcoming Jackson Hole Economic Symposium, where Federal Reserve Chair Jerome Powell’s comments are eagerly anticipated, especially with speculation mounting around potential interest rate cuts in September.

Forex & Commodities

The US dollar declined, particularly against the yen, which surged over 1% to 146.01 as investors anticipated a dovish tone from the Federal Reserve's upcoming meeting minutes and Jerome Powell's speech at Jackson Hole. The market is betting on a potential rate cut by the Fed in September, leading to broad dollar weakness.

The euro edged closer to a seven-month high, reaching $1.1043, while the British pound touched a one-month high of $1.2960. The Australian and New Zealand dollars also rose to one-month highs, bolstered by improving risk sentiment and reduced expectations of imminent rate cuts from the Reserve Bank of Australia.

Gold hovered near the $2,500 mark after hitting a record high of $2,509.65 last Friday. The precious metal's rally has been driven by optimism surrounding a US interest rate cut, although some profit-taking was observed, with spot gold down 0.3% to $2,501.03 per ounce.

In the oil markets, prices dipped due to concerns over weaker demand from China, the world's top oil importer. Brent crude fell 0.56% to $79.23 per barrel, and US West Texas Intermediate crude dropped 0.76% to $76.07 a barrel. Despite these declines, ongoing tensions in the Middle East and the Russia-Ukraine conflict continue to support prices, with market participants keeping a close eye on ceasefire talks in the region.