Fed Wagers Weaken Dollar and Fuel More Bond Gains – Europe Market Wrap

As investors got ready for the Federal Reserve to lower interest rates this week—the market was split on how much to cut this week—the dollar dropped and bonds gained.

The yen hit its highest level since July 2023 as anticipation of a narrowing US-Japan interest rate difference drove the dollar index to its lowest point in almost eight months. Treasury bonds continued to rise as the yield on the two-year note, which is sensitive to changes in policy, dropped to its lowest level since September 2022.

A pivotal few days began for stocks with modest swings as US equity futures and Europe’s benchmark Stoxx 600 index stuck to small ranges. Markets showed no response to the report of former President Donald Trump’s second assassination attempt.

This week marks the beginning of the much-awaited US easing cycle, which is a 36-hour monetary roller coaster that also includes decisions about policy in Brazil, South Africa, the UK, and Japan. For speculators, it’s essentially a coin flip as to whether the Fed will reduce rates by 25 or 50 basis points.