(Bloomberg) — Stocks advanced in Asia and the dollar weakened on mounting speculation the Federal Reserve is nearing the end of its tightening cycle. Japan’s Nikkei 225 Stock Average touched a fresh 33-year high.
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A gauge of regional equities headed for its highest close in two months after dovish comments from Federal Reserve officials last week bolstered bets the central bank is done with interest-rate hikes. The dollar slipped against all its Group-of-10 peers while an index of emerging-market currencies climbed to the highest since February.
Traders are currently pricing in around 30% probability of the first Fed rate cut in March after Fed Vice Chair for Supervision Michael Barr said Friday officials are likely at or near the end of their tightening campaign. Still, San Francisco Fed President Mary Daly said policymakers aren’t certain inflation is on a path to their 2% target.
Treasuries edged lower before a 20-year bond auction that will help gauge whether investors are confident 2023’s selloff is over once and for all. The Treasury market is poised to post its first monthly returns in November, ending a six-month losing streak. Australian and New Zealand bonds also retreated.
Investors should expect continued downward pressure on Treasury yields and the dollar as dovish Fed narrative remains in place, according to Win Thin, global head of currency strategy at Brown Brothers Harriman & Co.
Markets’ optimism, however, seems a little too excessive. “Does one month of somewhat favorable inflation data really warrant such a massive move in rates?” he wrote in a note. “We think not and yet here we are. We must respect this move while wholeheartedly disagreeing with it.”
Nikkei at 33-Year High
The Nikkei 225 Stock Average briefly surpassed its June intraday peak to reach the highest level since 1990, extending its gains this year to more than 28%. The index has been boosted by an extended period of yen weakness, solid company earnings, and corporate governance reforms championed by the Tokyo Stock Exchange.