LONDON: The dollar fell on Friday to its lowest this year against the yen and gold hit a record high after an overnight upheaval in investor expectations for a super-sized Federal Reserve interest rate cut next week.
Stocks, Treasury prices and commodities all rallied after traders raised the chances of a half-point cut from the Fed next week to 41%, from closer to 14 per cent a day ago, before articles in the Financial Times and Wall Street Journal each called the decision "a close call". Influential former New York Fed President Bill Dudley later said at a forum in Singapore "there's a strong case for 50".
"I've been firmly in the 25-basis point camp until now. This is actually making me think they might go 50," City Index market strategist Fiona Cincotta said.
"It feels like a coin toss now, that is what the market is showing, given the reactions we're seeing in bonds, the yen, the US dollar and gold," she said. The dollar dropped as much as 1.0 per cent to 140.36 yen, its weakest since last December 28. It was last down 0.74 per cent at 140.755.
The yen has also been supported this week by hawkish comments from Bank of Japan officials, with policy board member Naoki Tamura saying on Thursday he was "worried that upside inflation risk was heightening".
The dollar index, which measures the currency against the yen and five other major rivals, dropped to a one-week trough at 101.00. Benchmark 10-year Treasuries rallied, pushing yields down 3.2 basis points to 3.648 per cent, while rate-sensitive two-year yields dropped 5.7 bps to 3.591 per cent.
Commonwealth Bank of Australia strategist Carol Kong says current pricing for Federal Open Market Committee (FOMC) easing is too high.
"We continue to favour a 25 bp cut over a 50 bp cut, because the labour market and the broader economy remains resilient," she wrote in a note.
Oman Observer is now on the WhatsApp channel. Click here
