Gold prices have soared to an all-time high, and the dollar has surged again on Wednesday, putting pressure on both the yen and the euro. Meanwhile, stocks have declined in Asia as investors are reluctant to place major bets ahead of the highly contested U.S. election.
Shifting expectations regarding how fast and deep the Federal Reserve will cut rates have hurt risk sentiment, with traders now anticipating a measured approach to easing. This has driven U.S. Treasury yields to a three-month peak and lifted the dollar to multi-month highs against the euro, sterling, and yen, which is currently around 150 per dollar.
MSCI's broadest index of Asia-Pacific shares outside Japan was up 0.06%, while Tokyo's Nikkei index was slightly lower in early trading. "Volatility within a range-bound trade is increasingly becoming the norm as markets brace for pivotal weeks ahead, including the U.S. presidential election," said Anderson Alves, a trader with ActivTrades.
In China and Hong Kong, stocks opened steadily as government support for the economy helped major indexes settle at higher levels. The momentum has shifted toward a likely Trump presidency, with his policies, such as tariffs and restrictions on undocumented immigration, expected to drive inflation higher. This has supported the dollar, suggesting that U.S. interest rates may remain elevated for a longer time than anticipated.
Wall Street's main indexes ended mostly flat on Tuesday while investors kept an eye on U.S. Treasury yields and processed corporate earnings. Trump's chances of beating Vice President Kamala Harris, the Democratic candidate, have recently increased on betting websites, although opinion polls show that the race remains too tight to call.
With less than two weeks to go before the November 5 election, investors are bracing for volatility in the markets. The yield on benchmark U.S. 10-year notes was 4.216% in Asian hours after touching a three-month high of 4.222% in the previous session.
The Treasury sell-off has deepened this week as markets acknowledge that the Fed risks reigniting inflation if it eases into a strong economy, according to Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities. The expectation of a measured pace of rate cuts from the Fed has led the dollar higher in recent weeks, with the dollar index reaching 104.17, its highest since August 2.
In commodities, gold prices hit a record high of $2,749.07 in early trade before pulling back slightly to settle around $2,743.42. Ongoing geopolitical tensions, along with uncertainty surrounding the Fed outlook and the U.S. election, have fueled demand for safe-haven assets. Brent crude futures fell 0.4% to $75.73 a barrel, while West Texas Intermediate crude futures eased 0.38% to $71.47 per barrel after a sharp rise earlier in the week.
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Stocks decline as the dollar and gold surge amid changing U.S. rate expectations and political uncertainty ahead of the election.
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