Stocks drift, dollar and gold rise as traders weigh US rates, election

Gold prices hit a record high on Wednesday and the dollar was on the rise again, keeping pressure on the yen and the euro, while Asian stocks inched higher as investors were reluctant to place major bets ahead of a hotly contested US election.

Shifting expectations around how fast and deep the Federal Reserve will cut rates have also hurt risk sentiment, with traders now anticipating the US central bank to be measured in its easing.

That has taken US Treasury yields to a three-month peak and the dollar to multi-month highs against the euro, sterling and the yen, which is now back at 150 per dollar levels, prompting verbal warnings from Japanese officials.

MSCI's broadest index of Asia-Pacific shares outside Japan was last 0.3% higher. Tokyo's Nikkei fell 1% ahead of Japan's election this weekend.

China and Hong Kong stocks gained on Wednesday, buoyed by the promise of government help for the economy even though the scope and timing of stimulus measures remain uncertain.

The listless mood was set to continue in Europe, with Eurostoxx 50 futures 0.08% higher, German DAX futures up 0.11% and FTSE futures down 0.04%.

George Boubouras, head of research at Melbourne-based K2 Asset Management, said the strength of the economy and ongoing fiscal spending suggest the easing cycle in the US will be shallow.

"The market has priced in too much easing. This is now unwinding supporting the USD. Add the potential of a Trump election win, which will be USD supportive plus further curve steepening," Boubouras said.

The prospect of a Donald Trump presidency has been in focus for investors, with Trump policies including tariffs and restrictions on undocumented immigration expected to increase inflation.

That in turn has supported the dollar on expectations US rates may remain relatively high for a longer-than-anticipated period.

Trump's odds of beating Vice President Kamala Harris, the Democratic candidate, have recently edged higher on betting websites, though opinion polls show the race to the White House remains too tight to call.

With less than two weeks to go before the Nov. 5 election, investors are girding for volatility in the markets.

The yield on benchmark US 10-year notes was 4.234% in Asian hours, its highest in three months.

"The Treasury sell-off has deepened this week as markets acknowledge that the Fed risks reigniting inflation if it eases into a strong economy," said Prashant Newnaha, a senior Asia-Pacific rates strategist at TD Securities.

"Trump's improving election odds are also tempering market expectations for the Fed to continue easing into 2025 and the possibility of the Fed moving to the sidelines for six months next year cannot be ruled out."

Markets are currently pricing in 41 basis points (bps) of cuts for the year, with another 100 bps priced in for next year.

Traders anticipate the Fed to lower borrowing costs by 25 bps next month, having tempered their wagers of a larger cut in the wake of strong economic data. The Fed kicked off its easing cycle with a 50 bps cut in September.

The expectations of a measured pace of rate cuts from the Fed has led the dollar higher in recent weeks. The dollar index , which measures the US currency against six rivals, touched 104.17, its highest since Aug. 2.

The yen slid to a three-month low of 152.28 per dollar, while the euro hit $1.0792, its lowest level since Aug. 2.

In commodities, gold prices hit a record high of $2,750.9 as the conflict in the Middle East along with uncertainty around the Fed outlook and US election stokes demand for safe-haven assets.

Brent crude futures fell 0.14% to $75.93 a barrel, while West Texas Intermediate crude futures eased 0.18% to $71.61 per barrel after a sharp rise so far this week.