Fed rate-cut drumbeat pegs back dollar; Asian stocks take a breather

New Straits Times

3 days ago

SINGAPORE: The US dollar was under pressure on Thursday as traders piled into wagers that the Federal Reserve will resume cutting interest rates next month, powering Bitcoin to a record high, while a blistering rally in regional stocks took a breather.
MSCI's gauge of equities in Asia excluding Japan nudged higher and lingered near its loftiest level since September 2021, taking cues from Wall Street, where the S&P 500 and Nasdaq indexes hit new closing highs for the second straight day.
The MSCI All Country World Index rose to a record high for the second straight session on Wednesday.
Japan's Nikkei fell after a searing six-day rally that boosted it past the 43,000 mark for the first time. Shares in Korea and Taiwan were slightly lower as well. China's blue-chip stock index and shares in Hong Kong gained.
The dollar fell to a two-week low against a basket of major peers on shifting expectations of US rate cuts, with comments from the US Treasury Secretary also helping bolster expectations of an outsized 50 basis point cut.
The Japanese yen hit a three-week high of 146.38 per dollar in early trading.
Treasury Secretary Scott Bessent said on Wednesday that an aggressive half-point cut was possible in September after revised labour market data from last week showed that job growth had slowed sharply in May, June and July.
Goldman Sachs said on Wednesday in a research note it expects the US Federal Reserve to deliver three 25-basis-point interest rate cuts this year and two more in 2026.
Traders are pricing in certainty of a rate cut in September with odds of a 50 bps cut rising to 7 per cent, up from 0 per cent a week earlier.
While a tame US inflation report this week boosted the case for rate cuts, some analysts have cautioned against market complacency, saying that upcoming data may alter expectations.
"We're not as convinced of a 25bp FOMC rate cut in September as financial markets, let alone a 50bp rate cut," said Carol Kong, economist and currency strategist at Commonwealth Bank of Australia.
"There will be another CPI and payrolls report ahead of the September meeting that can make or break the case for a rate cut," Kong said.
Optimism on monetary policy easing in the world's largest economy also powered cryptocurrency bitcoin to an all-time high of US$124,002.49 with analysts also pointing to recent financial sector reforms as a tailwind for the asset class.
Bitcoin has risen 32 per cent so far in 2025, and the second largest cryptocurrency, Ethereum, has climbed 41 per cent and is hovering just shy of its all-time high hit in November 2021.
In commodity markets, gold prices rose 0.5 per cent to US$3,371 and crude oil prices edged up after hitting a two-month low on Wednesday as investors kept their focus on the summit between US President Donald Trump and Russian leader Vladimir Putin on Friday.
Trump on Wednesday threatened "severe consequences" if Putin did not agree to peace in Ukraine but also said that a meeting between them could swiftly be followed by a second one that would include Ukrainian President Volodymyr Zelenskiy.
In the past, Trump has said both sides will have to swap land to end fighting that has cost tens of thousands of lives and displaced millions.
"While lack of progress towards a ceasefire may lead to renewed threats of secondary oil tariffs/sanctions, we see limited risk of large disruptions in Russia supply," analysts at Goldman Sachs wrote in a note.
Large volumes of Russian exports, the possibility of deepening price discounts to maintain demand, and the likely eagerness of key buyers India, and especially China, to continue energy cooperation with Russia are expected to avert major disruptions, they said.
Trump signed an executive order last week levying an additional 25 per cent tariff on India's exports to the US, saying that the country directly or indirectly imported Russian oil. He has also hinted at similar tariffs on China.