A sharp decline in US inflation has reinforced expectations that the Federal Reserve (Fed) still has room to ease monetary policy, providing fresh support to global risk assets and government bonds. Markets are focusing more on the softest consumer price momentum since early 2021, despite doubts over the quality of the data due to the recent US government shutdown.Forex market
US Treasury bonds rose in value as investors saw the inflation data as confirmation that price pressures are rapidly easing, allowing the Fed to focus on supporting the labor market. While policymakers remain cautious, the data reinforced the dovish stance that supports interest rate cuts if economic momentum shows signs of slowing.
Japanese Yen Weakens
Currency markets, on the other hand, are telling a more complex story. The Japanese yen weakened sharply even as the Bank of Japan (BOJ) raised interest rates to their highest level in nearly three decades. The move lifted Japan's benchmark bond yield to around 2%, but failed to convince investors that the BOJ is ready to embark on an aggressive tightening cycle.
The yen's weakness against all other major currencies suggests that markets remain uncertain about the speed and maximum extent of Japan's interest rate hikes. With interest rate differentials still in favor of the US and other major economies, the yen continues to face challenges in attracting continued fund inflows.
BOJ Governor Kazuo Ueda is expected to provide further clarification on the outlook for monetary policy in the near future, with investors awaiting indications of whether additional tightening will occur in early 2026.
In the commodities sector, oil prices fell for a second straight week. Crude oil markets continued to be weighed down by expectations of a global oversupply, despite geopolitical tensions over US enforcement actions against sanctioned Venezuelan oil shipments.
Platinum Sees Strong Demand
In contrast, precious metals continued to see strong demand. Platinum continued its rise to its highest level since 2008, driven by signs of tightening supply in major trading hubs and precautionary stock buying amid heightened trade and tariff risks. The overall strength in the metals sector highlights continued demand for real assets as investors reassess their exposure to bonds and currencies
