European Stocks Rise as Oil Slides and Dollar Weakens on Fed Rate Cut Hints

By Jessica Huang

Cover Image Attribute: The Frankfurt Stock Exchange / Source: Alex Kraus, Bloomberg Finance LP

 

European share markets edged up on Thursday, while oil prices declined for the fifth consecutive day and the dollar remained weak, following the release of Federal Reserve minutes suggesting imminent U.S. interest rate cuts. The minutes revealed that the "vast majority" of policymakers believed a rate cut in September would be appropriate, provided economic data met expectations, reinforcing market predictions. In response, stocks, which had already rebounded strongly from earlier losses caused by market volatility, continued their efforts to gain ground.
European stocks opened slightly higher, with the STOXX 600 index gaining 0.3%, supported by gains in retail stocks. This uptick came after a quiet trading session in Asian markets. Meanwhile, oil prices continued to decline, with Brent futures trading at $75.96 per barrel, nearing their lowest level of the year. The drop in oil prices, which have fallen nearly 6% in August, is attributed to concerns over weakening demand in China and the anticipation of U.S. interest rate cuts, which suggest a potential economic slowdown. Investors are also bracing for a flood of economic data later in the day, including consumer confidence figures from the eurozone and U.S. PMI and initial jobless claims reports.
MSCI’s broadest index of Asia-Pacific shares outside Japan remained largely unchanged, reflecting the prevailing market sentiment. Sandrine Perret, a multi-asset portfolio manager at Unigestion, noted that recent movements confirm widespread expectations for Federal Reserve rate cuts in September. In the U.S., Wall Street futures indicated a potential gain of around 0.7%. The dollar index held steady at 101.21, having dipped to 100.92 overnight for the first time this year. Meanwhile, the euro, which had strengthened significantly earlier this month, fell by 0.2% to $1.1128 following weaker-than-expected PMI data from Germany. This data suggests that Germany's economy, which contracted by 0.1% in the second quarter, has yet to gain momentum as it moves into the latter half of the year.
Lower U.S. interest rates would provide central banks globally with more flexibility in their monetary policies. On Thursday, the Bank of Korea indicated that it might consider a rate cut in October, while the Bank of Indonesia has scheduled reductions for the fourth quarter. However, the outlook for U.S. rate cuts appears more pronounced compared to other countries, as market expectations suggest a more extended easing cycle in the U.S. Interest rate futures markets have fully factored in a 25-basis-point cut by the Federal Reserve next month, with a one-third chance of a 50-basis-point reduction. By the end of 2025, these futures project a total of 222 basis points of easing in the U.S., compared to 163 basis points anticipated for Europe. Meanwhile, ten-year Treasury yields remained stable at 3.80%, and two-year yields held at 3.93%.
The British pound reached $1.3095 and achieved a more than one-year high of $1.3119 on Wednesday, indicating a strong performance against the dollar. Investors are noting a downtrend in the dollar, with Ray Attrill, head of currency strategy at National Australia Bank, attributing the recent decline in the dollar to the clear signals from the Federal Reserve's minutes. Attrill suggested that the break above $1.30 for the sterling/dollar pair (often referred to as "cable") appears sustainable and similarly anticipates that the euro might trade within a $1.10-$1.15 range in the coming weeks.
With reporting by Reuters

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