Global financial markets have witnessed notable shifts recently. As market bets on a September interest‑rate hike by the Federal Reserve receded, Wall Street closed higher, setting a positive tone for Asian equities. Meanwhile, the Japanese yen staged a sharp rebound to end its prolonged downtrend. The US dollar and Treasury yields fell in tandem, while gold, crude oil and cryptocurrencies delivered mixed performances amid improved risk sentiment.

The shift in market sentiment was primarily triggered by a dovish remark from Federal Reserve Governor Christopher Waller. He stated that he would support keeping interest rates unchanged if inflationary pressures continue to ease and prices move steadily toward the Fed’s 2% target. This comment has dramatically altered rate‑hike expectations. Swap contracts now price in roughly a 50‑per‑cent chance of a 25‑basis‑point rate increase in September, down from approximately 70% earlier this week.

Falling inflation figures back up the case for a Fed pause. The US Personal Consumption Expenditures (PCE) price index, a key inflation gauge embedded in GDP data, stood at 3.7% in July, down from 4.1% in May. Even so, Waller struck a cautious tone, noting that further rate hikes would remain on the table if inflation rebounds, leaving monetary policy highly data‑dependent.

Latest US economic data released on Thursday painted a mixed picture. Initial jobless claims for the week ending August 29 came largely in line with forecasts, signalling a stable labour market. On the other hand, US service‑sector activity expanded at its fastest pace in six months in August on the back of stronger demand and rebounding business activity, underscoring underlying economic resilience and adding uncertainty to the Fed’s decision‑making process. Guha commented that the Fed is now more likely than not to hold rates steady in September, though the margin is narrow and the final call hinges on upcoming inflation prints.

Cooling rate‑hike expectations triggered a cross‑asset rally on Wall Street. The S&P 500 posted its best single‑day performance in a month and the Nasdaq 100 climbed 1.2%. Rate‑sensitive two‑year US Treasury yields dropped three basis points to 4.34%. The Bloomberg Dollar Spot Index slid to its lowest level since May. Weaker US dollar and falling real yields fuelled a gold rally, with bullion surging over 2% in New York trading to break above USD 4,470 per ounce.

In Asia, investor focus zeroed in on the yen’s strong rebound. The Japanese currency jumped around 2% on Thursday, marking its steepest one‑day gain in more than a month and reversing a month‑long losing streak. USD/JPY hit an intraday high of 155.30 before stabilising near the 156.00 level. Traders ramped up bets on a potential Bank of Japan rate hike while monitoring official rhetoric for signs of fresh intervention to prop up the yen.

This sentiment reversal came after weeks of scepticism over the long‑term effectiveness of Japan‑led currency intervention. Speculation that Japan’s largest pension fund may raise its domestic‑bond allocation target, combined with narrowing US‑Japan yield differentials driven by fading Fed‑hike odds, helped fuel the yen’s strongest session since Tokyo and Washington intervened to support the currency over a month ago. Equity futures for Japan, South Korea and Australia all advanced, setting a bullish opening tone for Asian stock markets.

Commodity and crypto markets also saw fresh price action. US crude oil rose 0.6% in early Friday trading to USD 91.81 per barrel. Oil prices were lifted by geopolitical tensions after Iran claimed responsibility for a new attack on US bases. Upside was capped, however, as Saudi Arabia raised prices for its flagship crude by less‑than‑expected margins, easing supply‑tightness concerns. Bitcoin broke above USD 81,000 amid broad risk‑on momentum.

The global market’s primary driver at present is the receding probability of a near‑term Fed rate hike. In the short run, this environment favours equities, gold and non‑US currencies while weighing on the US dollar and Treasury yields. Investors should closely monitor upcoming US inflation releases and Fed communications. The yen’s recovery trajectory and geopolitical risks will continue to influence Asian stocks and commodity prices, with traders advised to stay alert to policy‑related developments.

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