The US dollar eased on Friday to its lowest level of the year against the yen, while gold hit a record high after a sharp shift in investor expectations for a massive interest rate cut by the Federal Reserve next week.
Stocks, Treasury prices and commodities all rose after markets raised the odds of a half-point cut from the Federal Reserve to 41%, compared to just 14% a day earlier, before some views each described the decision as a "difficult decision."
Former New York Federal Reserve President Bill Dudley later said at a forum in Singapore that "there is a strong case for a reduction of 50 basis points."
The dollar fell 1.0% to 140.36 yen, its lowest level since December 28. It was last down 0.74% at 140.755.
The yen also got support this week from hawkish comments by Bank of Japan officials, with policy board member Naoki Tamura saying on Thursday that he was "worried that inflationary risks are rising."
The US dollar index, which measures the currency against six other major currencies, fell to a one-week low of 101.00.
The benchmark 10-year Treasury rose, pushing the bond yield down 3.2 basis points to 3.648%, while the rate-sensitive two-year yield fell 5.7 basis points to 3.591%.
Commonwealth Bank of Australia strategist Carol Kong says the current price for Federal Open Market Committee (FOMC) easing is too high.
"We are still more inclined to a reduction of 25 basis points than 50 basis points because the labor market and the economy as a whole are still strong," he wrote in a note.
“Current market prices are aggressive compared to the average FOMC rate cut cycle outside of a recession. We, along with the consensus of US economists, do not expect the US economy to enter a recession.”
The euro was up 0.13% at $1.10863, extending Thursday's 0.57% gain after European Central Bank President Christine Lagarde played down the prospect of a rate cut in October, following a quarter-point cut expected on Thursday.
Gold headed for its strongest weekly gain since mid-August, rising 2.8% to a high of $2,570 an ounce, driven by a weaker dollar. It was last up 0.3% at $2,566 an ounce.
