San Francisco Frontiers - Markets track Wall St records as Powell revives rate hopes

After a run of above-forecast data and warnings from central bank officials suggesting monetary policy would remain elevated for some time, the remarks provided fresh optimism that a reduction -- and possibly two -- was on the way before the end of the year.

Still, that was not enough to boost the euro against the dollar as traders fret over weekend polls in France that could see the far-right take power, which some warn could put the European Union's second-biggest economy on a collision course with the bloc.

Speaking at a forum in Portugal on central banking, Powell said the Fed had "made quite a bit of progress in bringing inflation back down to our (two percent) target, while the labour market has remained strong and growth has continued".

"We want that process to continue."

He also pointed to "substantial" work on softening the labour market, a key target among decision-makers. Key non-farm payrolls report will be closely followed Friday, with investors hoping for a slowdown in hiring that could give the Fed room to cut.

Powell said the two percent goal could possibly be reached "maybe late next year" or in 2026. The consumer price index came in at 3.3 percent in May, having peaked at a four-decade high above nine percent in 2022.

Futures traders believe there is a roughly 70 percent chance of a rate cut by mid-September, while it is more likely than not that it will make a second cut by the end of the year, according to CME Group data.

The prospect of borrowing costs finally coming down from their 23-year highs in a few months helped push Wall Street higher, with the S&P ending above 5,500 points for the first time and the Nasdaq closing at a record.

And Asia continued the rally, with Tokyo, Hong Kong, Singapore, Taipei and Manila all more than one percent higher, while Sydney, Seoul, Mumbai, Bangkok, Wellington and Jakarta were also in the green, though Shanghai fell.

London, Paris and Frankfurt joined the surge in morning trade.

On forex markets the euro was unable to build on recent gains against the dollar that had come earlier in the week on the back of Sunday's first-round legislative ballot that showed France's far-right might not garner enough seats to win an absolute majority.

There is a fear that a win for the National Rally (RN) of Marine Le Pen in the second round this weekend will see it introduce a budget that could cause a rift with Brussels, sparking fresh uncertainty in the European Union.

"Even the more moderate aspects of the RN agenda involve conflict with the EU on key planks of the bloc – domestic subsidies, a rebate for France and deficits," said Finalto's Neil Wilson.

However, while President Emmanuel Macron's centrists and left-wing parties embark on horse-trading to thwart the RN, analysts warned investors to be wary.

"If Macron's centrist alliance decides to support the far-left coalition... it may allow (them) an easier manoeuvre ticket in the France parliament to advocate their more aggressive fiscal spending policies and tax cuts as compared to the far-right," said Kelvin Wong at OANDA.

This, he added, would be "likely to widen France's last year excessive budget deficit of 5.5 percent that breached EU's benchmark budget deficit ceiling of three percent".

- Key figures around 0810 GMT -

Tokyo - Nikkei 225: UP 1.3 percent at 40,580.76 (close)

Hong Kong - Hang Seng Index: UP 1.2 percent at 17,978.57 (close)

Shanghai - Composite: DOWN 0.5 percent at 2,982.38 (close)

London - FTSE 100: UP 0.4 percent at 8.151.51

Euro/dollar: UP at $1.0750 from $1.0749 on Tuesday

Euro/pound: DOWN at 84.69 pence from 84.71 pence

Pound/dollar: UP at $1.2691 from $1.2686

Dollar/yen: UP 161.86 yen at 161.46 yen

West Texas Intermediate: UP 0.4 percent at $83.12 per barrel

Brent North Sea Crude: UP 0.4 percent at $86.56 per barrel

New York - Dow: UP 0.4 percent at 39,331.85 (close)

F.Garcia--SFF