The US dollar is on track for its best quarterly performance in almost a year, primarily supported by market expectations that the Federal Reserve will maintain higher interest rates for an extended period. This view is reinforced by recent resilient US economic reports. Fed Chair Kevin Warsh's upcoming speech at the ECB's Sintra conference and Thursday's US non-farm payrolls report are anticipated to be key events that could further solidify expectations for a tighter monetary policy.
Global equities concluded the second quarter with substantial gains, marking their largest percentage increase in six years. Asian stocks saw their best quarterly gain in 17 years, driven by a tech-led rally. The Nasdaq Composite surged over 21%, while the MSCI All-World index gained 14.5%, reaching a record high. Emerging market stocks also performed strongly, up 23% for the period, with South Korea's KOSPI increasing 68% and Taiwan's benchmark up 45%.
Conversely, the Japanese yen weakened significantly, reaching a new four-decade low of around ¥162 per dollar. This depreciation has raised concerns about potential market intervention by Japanese authorities. Despite the dollar's overall strength and expectations for Fed rate hikes, improved risk sentiment, partly due to easing Middle East tensions and falling oil prices, has led to the dollar giving back some recent gains against G10 currencies.
Oil prices retreated to pre-conflict levels, with Brent crude experiencing its largest quarterly drop since 2020. Gold also saw a significant decline, recording its weakest month since 2008 and a 14% quarterly drop, its largest since 2013, largely due to the stronger dollar. Investors are now looking to the third quarter, with the US payrolls report being a critical Upcoming catalyst.
