HONG KONG: The euro and pound held their gains against the dollar on Monday after signals from global central banks that they were prepared to tighten monetary policy, while equity markets mostly eked out small gains after last week’s losses.
The greenback tumbled after the Bank of England, the European Central Bank and the Bank of Canada indicated that the age of cheap cash — in place since the financial crisis — was drawing to a close as the world economy gets back on track.
The comments also signalled the end of policy divergence with the Federal Reserve, which has been in a tightening mode for years and supportive of the dollar.
“While we’ve known for some weeks now that policy makers at both the Bank of England and the ECB have become increasingly open to tighter monetary policy, this shift… was a sign that even the more dovish policy makers may be reluctantly accepting the possibility that monetary policy will become less accommodative,” said OANDA senior market analyst Craig Erlam.
Since the turn of the year the euro has jumped about ten percent against the dollar, while the pound has gained almost as much from its January lows, despite British political uncertainty caused by the country’s decision to leave the EU.
The two currencies dipped in Asian trade but held most of their recent gains.
China bond link
Greg McKenna, chief market strategist at AxiTrader, said: “It may be still too early for the other central banks to move, but the market is getting a sense the punch bowl is about to be taken away.
“I think the coordination of language reflects a coordination of the recognition that the global economy is pointing higher and the time for emergency policies in individual jurisdictions has ended.”
On equity markets Tokyo’s Nikkei ended 0.1 percent higher, boosted by a slightly weaker yen and a pick-up in confidence among Japanese businesses.
However, traders were spooked by a huge defeat for Prime Minister Shinzo Abe in Tokyo assembly elections, with his ruling party losing more than half its seats as he is rocked by a series of scandals and falling support.
Hong Kong swung through the day and was up 0.2 percent in the afternoon while Shanghai edged 0.1 percent higher, despite a better-than-expected private survey showing Chinese manufacturing expanded last month.
Sydney fell 0.7 percent and Singapore edged up 0.2 percent while Seoul ended slightly stronger. Taipei and Jakarta rose but Wellington and Manila finished down.
In China a link opening up the country’s $10 trillion bond market to the world began on Monday, with traders able to buy in through the connect programme in Hong Kong.
The new platform mirrors previously established link-ups between the share markets of Hong Kong and mainland China that now allow foreign and Chinese investors to buy shares in the each other’s markets.
However, the buying was muted in early exchanges, with the yield on 10-year government debt edging up slightly.
Yields move inversely to bond prices, meaning they go up when demand for the bond goes down.