As traders anticipate that the Federal Reserve will soon halt its campaign of interest rate hikes, the dollar has declined in value relative to its key competitors.
More evidence of declining US inflation was welcomed by Asian markets on Friday, allowing the Federal Reserve flexibility to end more than a year of interest rate hikes.
The post-Covid reopening, supply chain bottlenecks, and Russia’s invasion of Ukraine all contributed to this week’s booming global markets as investors hoped that monetary tightening would come to a stop.
That has happened right when China has promised to take steps to revive its faltering economy and put a stop to a severe crackdown on the enormous tech sector.
Wall Street rejoiced upon hearing on Thursday that wholesale prices increased less in June than anticipated. That came after a report on Wednesday that showed the consumer price index was below expectations.
Analysts noted that even if the CPI is still above the Fed’s objective, there is rising optimism that officials are winning the war and the economy will avoid the dreaded recession.
The Nasdaq rose more than 1% as IT businesses benefited from a low-rate environment, while US traders drove the S&P 500 up about 1% to its highest finish since April last year.
“The back-to-back softer inflation prints have further convinced traders that the Fed is topping out this month as thoughts of a September hike get blotted out,” stated Stephen Innes of SPI Asset Management.
Because of this, “the door appears wide open for global investors to strap on those peak Fed trades after numerous fits and starts.”
The positive vibe from Wall Street spread to Asia, where Hong Kong climbed for a fifth day in a row due to a rebound in Chinese tech heavyweights, as well as gains in Sydney, Seoul, Singapore, Taipei, and Jakarta.
Tokyo, meanwhile, struggled as a result of the yen strengthening against the dollar, which has been under pressure versus its peers due to lowered expectations for US interest rates.
The dollar-to-yen exchange rate for the Japanese yen was holding below 138, its highest level since May, while the euro was at a 17-month high above $1.12. Sterling was also just above the $1.31 mark.
Marvin Loh, a strategist at State Street, cautioned the Fed that it was still uphill to bring inflation to its target level.
It will still take a lot of work to get to two percent, he told Bloomberg News.
“Higher for longer is still going to be the message that comes out of the Fed and ultimately might be appropriate.”
And even if the most recent CPI report was “very positive,” Fed Bank of San Francisco president Mary Daly said she was still in a “wait-and-see mode” because she was “resolute to bring inflation down to two percent.”
Traders are eager to learn about company outlooks in light of rising rates and indications that economies are faltering as the focus now shifts to the corporate earnings season.
Important data around 2:30 GMT
Nikkei 225 in Tokyo: Up 0.2 percent at 32,493.82 (pause)
Hong Kong’s Hang Seng Index increased by 0.5% to 19,451.40.
Composite for Shanghai is up 0.2 percent at 3,241.92
Euro/dollar: Up from $1.1230 on Thursday to $1.1237 today.
Dollar/yen: down from 138.03 yen to 137.52 yen.
Pound/dollar exchange rate fell to $1.3130 from $1.3134.
Up at 85.56 pence from 85.47 pence for the euro/pound.
At $77.09 per barrel, West Texas Intermediate is up 0.3 percent.
At $81.50 a barrel, Brent North Sea crude is up 0.2 percent.
New York: The Dow gained 0.1 percent to close at 34,395.14
London’s FTSE 100 closed up 0.3% at 7,440.21.