The dollar has fallen to its lowest in 2024 against the yen and gold has hit a record high after a dramatic shift in investor expectations for a super-sized Federal Reserve interest rate cut.

Stocks, Treasury prices and commodities rallied after traders raised the chances of a half-point cut from the Fed next week to 41 per cent, from closer to 14 per cent a day ago, before articles in the Financial Times and Wall Street Journal each called the decision “a close call”.

Influential former New York Fed president Bill Dudley later said at a forum in Singapore “there’s a strong case for 50”.

“I’ve been firmly in the 25-basis point camp until now. This is actually making me think they might go 50,” City Index market strategist Fiona Cincotta said.

“It feels like a coin toss now, that is what the market showing, given the reactions we’re seeing in bonds, the yen, the US dollar and gold,” she said.

The dollar dropped as much as 0.97 per cent to 140.415 yen , its weakest since December 28. 

It was last down 0.77 per cent at 140.68.

The yen has also been supported this week by hawkish comments from Bank of Japan officials.

The dollar index, which measures the currency against the yen and five other major rivals, dropped to a one-week trough at 101.00.

Benchmark 10-year Treasuries rallied, pushing yields down 4.2 basis points to 3.638 per cent, while rate-sensitive two-year yields dropped 6.8 bps to 3.585 per cent.

Global shares rose for a fifth day, up 0.2 per cent, thanks to gains in Europe, where the STOXX 600 rallied 0.4 per cent, heading for a weekly gain of 2.6 per cent, the most in a month.

The euro rose 0.13 per cent to $US1.1087, building on Thursday’s 0.57 per cent advance after European Central Bank president Christine Lagarde pushed back on prospects of a rate cut in October following a widely expected quarter-point reduction on Thursday.

Gold headed for its strongest weekly gain since mid-August, up 2.8 per cent to a record high of $US2,570 an ounce, driven by dollar weakness. 

It was last up 0.4 per cent at $US2,568 an ounce.

MSCI’s broadest index of Asia-Pacific shares outside Japan rallied 0.53 per cent.

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

US stock futures added 0.1 per cent following gains on Thursday for the cash indices.

Crude oil continued to climb after surging about two per cent overnight as producers assessed the impact on output after Hurricane Francine tore through the Gulf of Mexico.

US West Texas Intermediate crude futures rose 0.51 per cent to $US69.32 a barrel, extending Thursday’s 2.5 per cent rally. 

Brent crude futures rose 0.5 per cent to $72.30, after a 1.9 per cent jump the previous day.

This post was originally published on Michael West.