Dollar Hits Yearly Low, Gold Reaches New High Amid Fed Rate Cut Speculation

The dollar fell to its lowest point this year against the yen, while gold reached a record high, driven by speculation of a significant Federal Reserve interest rate cut next week. This follows influential commentary and data signaling economic resilience despite market fluctuations.

The dollar plummeted to its lowest point this year against the yen on Friday while gold soared to a record high as investors increased bets on a substantial Federal Reserve interest rate cut next week. Shares in Asia also rose after traders upped the likelihood of a 50-basis point U.S. rate cut on Sept. 18, based on LSEG data at 0510 GMT, up from about 28% following influential articles in the Financial Times and Wall Street Journal that labeled the decision 'a close call.'

Influential ex-New York Fed President Bill Dudley bolstered these speculations at a Singapore forum, asserting 'there's a strong case for 50.' IG analyst Tony Sycamore noted the 'tug-of-war' being played out in bond futures and the dollar-yen rate with everyone initially assuming a 25 basis points cut before the chance of a 50 basis points cut came back into consideration. The dollar slid as much as 0.81% to 140.645 yen, its weakest since Dec. 28.

The yen found additional support through hawkish remarks from Bank of Japan officials, with policy board member Naoki Tamura expressing concerns over rising inflation risks. Commonwealth Bank strategist Carol Kong considers current market pricing for FOMC easing excessive, favoring a 25 bp cut due to a resilient labor market and broader economy. Gold extended its climb, reaching a new high at $2,570.03, with MSCI's Asia-Pacific share index also rallying. Asian markets showed mixed results, with U.S. and Pan-European stocks futures rising and crude oil prices climbing due to Hurricane Francine's impact.

(With inputs from agencies.)