Dollar dips as rate cut hopes surge; global bonds rally
Fed's rate cut expectations weaken the dollar; Asian bonds and equities buoyed by optimistic market sentiment
Dollar index lingers below 101, marking its weakest in five months amid Fed rate cut expectations.
Asian bonds rally, echoing global bond market optimism; Treasuries and German yields drop.
Yen strengthens as BoJ Governor hints at Japan's potential rate hike, the first since 2007.
Dollar's weakness amid rate cut anticipation
The dollar index remained subdued below the 101 mark on Thursday, hitting its lowest point in five months as firm expectations of Federal Reserve interest rate cuts next year took hold. Analysts attribute this trend to cooling inflation and the Fed's strategy for a soft landing in the US economy. With a nearly 90% chance of a Fed rate cut projected for March, the market anticipates up to 158 basis points of cuts in 2023. The dollar's broad weakness, particularly against the Chinese yuan, comes as traders await US jobless claims and pending home sales data for further direction.
Global bond rally extends to Asia
The rally in global bonds has spread to Asia, with Australian and New Zealand sovereign debt gaining momentum following a drop in US Treasury and German yields. This uptrend has pushed a global bond market index towards its best two-month rally in history.
Asian equity market optimism
Asian equities continued their positive run for the fourth consecutive day, eyeing a strong year-end finish. Chinese stocks, particularly large-cap ones, are experiencing their best day in four months, while Japanese equities face pressure due to the strengthening yen. US stock futures also show firmness, adding to the S&P 500's modest gains. A global stock measure is poised for its highest close since early 2022, reflecting traders' optimism for potential interest rate cuts in the coming year.
Yen gains as BoJ preps for rate hike
In Asia, the yen has strengthened for two consecutive days, buoyed by Bank of Japan Governor Kazuo Ueda's remarks indicating a readiness for Japan's first interest rate increase since 2007. Ueda's comments suggest that the BoJ might make decisions ahead of the full results of spring wage negotiations, setting the stage for a potential shift in Japan's monetary policy.