By Kevin Buckland
TOKYO (Reuters) -The dollar on Friday slumped against the yen while gold hit an all-time peak as investors ratcheted up bets for a super-sized Federal Reserve interest rate cut next week after media reports suggested the decision was a tough one for officials.
Shares in Asia also advanced after traders raised bets back to 41% for a 50-basis point U.S. rate cut on Sept. 18, according to LSEG data at 0155 GMT, from about 28% before articles in the Financial Times and Wall Street Journal each called the decision “a close call”.
“This is yet another twist in the (Fed rate cut) debate,” said Tony Sycamore, an analyst at IG, noting the tug-of-war being played out in bond futures and the dollar-yen rate in particular.
“Everybody thought we were back on track for 25 basis points, and now 50 is suddenly back on the table.”
The dollar dropped 0.41% to 141.225 yen, heading back towards Wednesday’s low at 140.71, the weakest level this year.
The yen has also been supported this week by hawkish comments from Bank of Japan officals, with policy board member Naoki Tamura on Thursday saying he was “worried that upside inflation risk was heightening.”
The dollar index, which measures the currency against the yen and five other major rivals, dropped to a one-week trough at 101.03.
The euro added 0.09% to $1.1084, building on Thursday’s 0.57% 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 extended Thursday’s 1.9% climb to reach a fresh record high of $2,567.93, buoyed by the dollar’s weakness.
MSCI’s broadest index of Asia-Pacific shares outside Japan rallied 0.53%.
Hong Kong’s Hang Seng led advances in regional markets, gaining 1.13%. Mainland Chinese blue chips added 0.24%. Australia’s benchmark climbed 0.31%. South Korea’s Kospi was flat.
Japanese stocks underperformed, though, dragged lower by the stronger yen, with the Nikkei losing 0.48%.
Japan, mainland China and South Korea are all heading into long weekends, with Tokyo back on Tuesday, China on Wednesday and South Korea not until Thursday.
U.S. stock futures were flat following gains on Thursday for the cash indexes.
Crude oil continued to climb after surging around 2% overnight, as producers assessed the impact on output after Hurricane Francine tore through the Gulf of Mexico.
U.S. West Texas Intermediate crude futures rose 0.54% to $69.34 per barrel, building on Thursday’s 2.5% rally. Brent crude futures added 0.47% to $72.31, after a 1.9% jump in the previous session.
