Strong Japan GDP lifts yen; dollar steadies as rate-cut fever cools and FTSE 100 hits record high
Hotter US PPI cooled rate-cut fever, but upbeat Japan GDP firmed the yen and lifted Tokyo stocks, while the FTSE 100 broke to fresh highs as investors await Powell’s guidance.
Dollar holds steady as Fed-cut bets ease
The US dollar held broadly steady against the euro and sterling on Friday as traders pared back expectations for aggressive Federal Reserve (Fed) easing after hotter-than-expected US wholesale inflation.
By contrast, the Japanese yen firmed after stronger growth data from Japan, with export volumes proving resilient despite newly imposed US tariffs. The Japanese currency gained about 0.4% to ¥147.11 per dollar and rose roughly 0.3% against both the euro and the pound.
Tokyo stocks rebound on GDP surprise
Japanese equities also rebounded. The Nikkei 225 advanced roughly 1.7% to reclaim levels above 43,000, while data showed Japan’s economy expanded 0.3% quarter-on-quarter in the second quarter (Q2), accelerating from 0.1% in the first quarter (Q1) and matching consensus, with net exports contributing 0.3 percentage points to growth even as trade headwinds persisted.
FTSE 100 breaks out to fresh records
In London, the FTSE 100 has joined the global march to fresh record highs, lifted by improved risk appetite, supportive international backdrops and robust corporate results by the likes of Admiral and Aviva on Thursday.
With investors drawing confidence from a friendlier interest-rate outlook and resilient earnings, the UK benchmark finally vaulted its previous ceiling.
The index is up more than 11% year-to-date, outpacing the S&P 500 and Nikkei 225, a reminder that broad market momentum can buoy UK equities even amid lingering domestic economic worries.
US inflation quickens, complicating the Fed’s path
Stateside, US producer prices rose 0.9% month-on-month in July - the largest increase since June 2022 - signalling broader inflation pressures across goods and services.
Initial jobless claims edged lower, underscoring labour-market resilience and leaving policymakers to weigh firmer inflation against still-solid employment conditions.
Markets trim odds of larger cut; Powell guidance awaited
Market pricing continues to favour a 25-basis-point rate cut in September, but those odds were trimmed after the PPI surprise and talk of a larger 50-bp move faded.
Investors will turn to remarks from Fed Chair Jerome Powell next week for guidance on the policy path, while the bond market’s capacity to absorb heavier Treasury supply in September-October remains a key swing factor for the dollar and Us equities.
Geopolitics are also in focus ahead of Friday’s Alaska meeting between US President Donald Trump and Russia’s Vladimir Putin; Trump said he believes Putin is ready to end the war in Ukraine, though any deal would likely require a subsequent meeting involving Ukraine’s leadership.
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