S&P 500 Climbs Ahead of Anticipated Fed Rate Cut, Gold Hits Record High as USD/JPY Weakens | Daily Market Analysis

Key events:

• Eurozone - Eurogroup Meetings
• USA - Michigan Consumer Sentiment (Sep) 

The S&P 500 finished higher on Thursday, brushing off stronger-than-expected producer price data as investors shifted their focus to the anticipated Federal Reserve interest rate cut next week.

The S&P 500 climbed 0.8%, the Nasdaq Composite gained 1%, and the Dow Jones Industrial Average increased by 235 points, or 0.6%.

Boeing (NYSE: BA) rose 1%, despite the potential for a strike as more than 30,000 workers in the Pacific Northwest may vote to reject a tentative labor agreement on Friday, which could result in a work stoppage.

Boeing had earlier reached a provisional deal with its employees that included a 25% pay increase, a new aircraft production commitment in the region, improved retirement benefits, and enhanced union participation in quality control. However, reports suggest the deal might be rejected as workers are pushing for higher wages and additional benefits.

Meanwhile, gold prices built on the momentum from Thursday's breakout above the $2,525-$2,530 resistance zone, reaching a new all-time high during the Asian session on Friday. A weaker-than-expected US Producer Price Index (PPI) report fueled expectations of a significant interest rate cut by the Federal Reserve in September, keeping US Treasury yields near their 2024 lows and pushing the US dollar to a fresh weekly low. This has further boosted demand for gold, a non-yielding asset.

In addition to this, ongoing geopolitical tensions in the Middle East and the prolonged Russia-Ukraine conflict continue to support demand for gold as a safe-haven asset. Despite these bullish factors, traders may exercise caution and hold off on new positions ahead of next week's key central bank decisions, with the Federal Reserve set to announce its rate decision on Wednesday, followed by the Bank of Japan on Friday.

The USD/JPY pair continues to slide below the mid-141.00s during the Asian session on Friday, edging closer to the year-to-date low reached earlier this week. The broader market conditions seem to favor bearish traders, reinforcing the likelihood of extending the downtrend that has been in place for over two months.

On the flip side, the Japanese Yen gains support from the Bank of Japan's increasingly hawkish tone, signaling potential future interest rate hikes if the economic outlook aligns with forecasts. BoJ board member Naoki Tamura emphasized on Thursday that the path to ending the easy monetary policy remains long, which contrasts sharply with the more dovish expectations surrounding the Federal Reserve. This divergence has led to the unwinding of JPY carry trades, further pressuring the USD/JPY pair.

Given these fundamentals, it appears that the downward trajectory for the USD/JPY is likely to persist. However, traders may adopt a cautious approach ahead of the upcoming central bank meetings next week. The Federal Reserve's decision will be revealed at the conclusion of its two-day meeting on Wednesday, followed by the BoJ's policy update on Friday, which could set the next significant movement for the pair. Despite this, the USD/JPY is on track to post its second consecutive weekly loss.

Meanwhile, the USD/CAD pair has recovered from a minor dip during the Asian session and is now trading around the 1.3575 level, showing little change for the day. However, the pair's upward momentum remains limited. The recent rebound in crude oil prices, following a slump to their lowest levels since June 2023, is providing support for the Canadian Dollar, helping to cap gains in the USD/CAD pair.

Traders will now focus on Friday's economic releases, which include the Preliminary Michigan US Consumer Sentiment Index and lower-tier data from Canada. Additionally, US Treasury yields and overall risk sentiment will play a role in determining USD demand. Combined with oil price fluctuations, these factors could create short-term opportunities for USD/CAD traders. Despite these considerations, the pair is on track to secure modest weekly gains, though a breakout above the 1.3600 level would be necessary to attract fresh buying interest.