Stocks surge to new highs as dollar weakens ahead of Fed decision

Global Markets Reach New Heights Amid Expectations of Fed Rate Cuts

Global stock markets reached new record highs on Monday, fueled by expectations that the U.S. Federal Reserve will begin its monetary policy easing cycle. This optimism was further supported by a weakening U.S. dollar and rising gold prices, which remained near historic levels.

Traders are nearly certain that the Fed will implement a 25 basis-point interest rate cut at the conclusion of its upcoming policy meeting on Wednesday. According to the CME's FedWatch tool, the probability of this move is close to 100%. The MSCI All-Country World Index climbed to 976.86, marking a 0.47% increase and surpassing last week’s record high.

On Wall Street, the S&P 500 and Nasdaq Composite both hit intraday record highs, while the Dow Jones Industrial Average remained relatively flat. Specifically, the Dow rose 0.01% to 45,839.54, the S&P 500 gained 0.47% to 6,615.31, and the Nasdaq Composite increased by 0.82% to 22,323.25.

European markets also saw gains, with stocks rising 0.40% on the day. In Asia-Pacific, the MSCI index closed higher by 0.10%.

Wasif Latif, chief investment officer at Sarmaya Partners in New Jersey, noted that the market remains in a "wait-and-see" mode ahead of the Fed’s announcement. He pointed out that the market has been consistently hitting new highs in anticipation of the rate cut, suggesting that the trend is likely to continue.

The Fed’s "dot plot" projections for future interest rates and guidance from Chair Jerome Powell will be crucial in shaping market sentiment. The yield on the benchmark U.S. 10-year Treasury note fell 2.4 basis points to 4.036%.

Futures contracts already reflect an expectation of 125 basis points in rate cuts by late 2026. Any indication of less dovish policy could disappoint investors. Latif emphasized that the market has already priced in significant movement due to the anticipated rate cut, raising the question of whether the actual announcement might trigger a sell-off.

U.S. President Donald Trump continued his criticism of the central bank, accusing Fed Chair Jerome Powell of being incompetent and harming the housing market. Meanwhile, the Bank of Canada is expected to cut rates by a quarter point this week, while the Bank of Japan and the Bank of England are anticipated to maintain their current policies.

In the currency markets, the U.S. dollar weakened against major peers ahead of the Fed’s expected rate cut. It dropped 0.23% against the Japanese yen, reaching 147.315, and fell 0.27% against the Swiss franc, trading at 0.79420.

The euro managed to rise despite a recent downgrade of France by Fitch, increasing 0.27% against the U.S. dollar to $1.1767. However, it was slightly weaker against the British pound, trading at 86.5 pence, down 0.1% on the day.

The euro has benefited from a stable outlook for European Union interest rates, with the European Central Bank signaling that it is in a favorable position regarding its monetary policy. Several ECB officials, including President Christine Lagarde, are scheduled to speak this week.

Other Key Developments

The United States and China have reached a framework agreement to transition TikTok to U.S.-controlled ownership. This arrangement is expected to be finalized during a call between President Donald Trump and Chinese President Xi Jinping on Friday.

Nvidia faced a setback after China’s market regulator announced that a preliminary investigation found the company had violated the country’s anti-monopoly laws. This marks another challenge for the U.S. chip giant.

Oil prices rose as investors evaluated the impact of Ukrainian drone attacks on Russian refineries. Brent crude futures increased by 0.61% to $67.39 per barrel, while U.S. West Texas Intermediate crude rose 0.85% to $63.23 per barrel.

Gold prices also climbed, reaching near record highs, driven by a weaker dollar and lower Treasury yields. Spot gold rose 0.66% to $3,666.52 per ounce.