Article 1 of 2 LSEG signage is seen on screens in the lobby of the London Stock Exchange in London, Britain, May 14, 2024. REUTERS/Hannah McKay/File Photo
LONDON, Aug 20 (Reuters) – European shares hit a two-and-a-half-week high on Tuesday, following a rally on Wall Street driven by expectations that the U.S. Federal Reserve could provide further hints of impending interest rate cuts later this week.
With relatively little data on the data calendar in major economies this week, all eyes are on the release of the minutes of the Fed’s July meeting on Wednesday and Fed Chair Jerome Powell’s speech in Jackson Hole on Friday for clues about the outlook for US interest rates.
“If they acknowledge the disinflation path of the US economy, this would confirm a rate cut in September,” said Thierry Wizman, foreign exchange and interest rate strategist at Macquarie.
“Markets will likely focus on the extent to which Powell opens the door for a 50 basis point (bp) cut at one of the next three FOMC meetings.”
“Recession fears have subsided in recent weeks and the market has recovered significantly.”
U.S. stock futures rose, with S&P 500 futures last up 0.1% while Nasdaq futures rose 0.3%.
Expectations of a dovish Fed outcome this week left the dollar at a more than seven-month low against the euro, peaking at $1.108775 on Tuesday. Sterling hit a one-month high and was last at $1.2995.
The dollar index was last at 101.84 and had previously fallen to its lowest level since early January (101.76) in the session.
Against the yen, the dollar was unchanged at 146.50, with traders also looking ahead to Bank of Japan (BOJ) Governor Kazuo Ueda’s appearance in parliament on Friday, where he will discuss the central bank’s decision last month to raise interest rates.
“As markets calm down, Ueda may change course and start talking about normalizing interest rates again,” said Joseph Capurso, head of international and sustainable economics at the Commonwealth Bank of Australia.
This gave the Australian dollar some boost, although it was last down 0.1 percent after hitting a one-month high earlier in the session.
In commodities, oil prices fell on easing concerns about supply shortages in the Middle East. Brent crude was last down 1% at $76.91 per barrel. US crude was down 1.2% at $73.50 per barrel.
The spot price of gold reached a new record of $2,521.36 per ounce, supported by a generally weaker dollar and expectations of imminent interest rate cuts in the US.
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Reporting by Samuel Indyk and Rae Wee; Editing by Edwina Gibbs and Kim Coghill
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