Dollar drops, gold near record high as bets for big Fed cut ramp up

Investors on September 13 ratcheted up bets for a super-sized Federal Reserve interest rate cut next week, after media reports suggested the decision would be a closer call for officials than previously thought.

Traders raised bets back to 39% for a 50-basis point reduction on September 18, according to LSEG data, from about 28% before articles in the Financial Times and Wall Street Journal appeared.

“This is yet another twist in the (Fed rate cut) debate,” said Tony Sycamore, an analyst at IG, noting the tug-of-war being played out in bond futures and the dollar-yen rate in particular.

“Everybody thought we were back on track for 25 basis points, and now 50 is suddenly back on the table.”

The dollar dropped 0.42% to 141.22 yen as of 0020 GMT, heading back towards Wednesday’s low at 140.71, the weakest level this year.

The dollar index, which measures the currency against the yen and five other major rivals, dropped to a one-week trough.

Gold hovered just below Thursday’s all-time high of $2,560.01, last changing hands at $2,558.55.

Equities were mixed though, with Japan’s Nikkei losing 0.7% under the weight of a stronger yen, while South Korea’s Kospi edged marginally lower. Australia’s benchmark climbed 0.75%. Chinese markets had yet to open.

Japan, mainland China and South Korea are all heading into long weekends, with Tokyo back on Tuesday, China on Wednesday and South Korea not until Thursday.

US stock futures pointed up slightly following gains on Thursday in the cash indexes. S&P 500 futures were 0.1% higher.

Crude oil continued to climb following gains of around 2% overnight as producers assessed the impact on output in the Gulf of Mexico after Hurricane Francine tore through offshore oil-producing areas.US West Texas Intermediate crude futures rose 0.5% to $69.32 per barrel, building on Thursday’s 2.5% rally. Brent crude futures added 0.4% to $72.26, after a 1.9% jump in the previous session.