Pound Sinks for Fifth Day as Kiwi, Rand Retreat

The British pound fell for a fifth day, weighed down by a loosening monetary policy, as New Zealand’s dollar retreated with commodities. Asian shares climbed to a one-year high as Chinese inflation data added to signs of stabilization in the world’s second-largest economy.

Sterling slipped to a four-week low after the Bank of England stepped up bond purchases this week. The currencies of commodity-exporting nations weakened as oil sank below $43 a barrel and copper slipped to a four-week low. Taiwan’s dollar gained as foreigners boosted holdings of the island’s stocks. European equities fluctuated as Asia’s advanced for a fourth day. India’s bonds rose following a monetary policy review, while China’s benchmark yield dropped to a seven-year low.

A series of better-than-expected U.S. economic data in recent weeks has helped drive global equities to their highest level in almost a year and spurred expectations that the Federal Reserve will raise interest rates. The prospect of a hike in borrowing costs is bolstering demand for dollars at a time when monetary policy is being loosened across much of Asia and Europe.

“There has been a reasonable spike for commodities over the past couple of days and metals may be just due a correction given the dollar moves,” said David Lennox, resources analyst at Fat Prophets in Sydney.

The Reserve Bank of India left interest rates unchanged on Tuesday and Governor Raghuram Rajan, whose term ends early next month, said the authority’s policy stance remains accommodative. China’s factory-gate deflation eased for the seventh straight month in July, signaling improving conditions for manufacturers in an economy that expanded last year at the slowest pace in more than two decades. Germany reported a smaller increase in June exports than economists forecast, while the U.K. has figures due on trade and industrial output.

Currencies

The pound sank 0.4 percent versus the dollar as of 8:32 a.m. London time, contributing to a five-day loss of 2.7 percent. As well as cutting interest rates for the first time since 2009, the Bank of England on Aug. 4 exceeded economists’ expectations with an announcement that it would increase its gilt-purchase program by 60 billion pounds ($78 billion) to 435 billion pounds, starting this week.

“We could see some short-term weakness in the pound,” said Janu Chan, a senior economist at St. George Bank Ltd. in Sydney. “It was an extensive stimulus program that the BOE announced. The economy has been hit in the short-term, and could face a minor recession.”

Among the commodity currencies, South Africa’s rand and the kiwi weakened 0.3 percent. Investors are certain New Zealand’s central bank will reduce its benchmar interest rate on Thursday by at least a quarter point to 2 percent, a record low, and most expect it will deliver another cut to 1.75 percent by November, swaps data show.

Taiwan’s dollar gained as much as 0.4 percent to its strongest level in a year after trade data released Monday showed exports increased in July for the first time in 18 months. Global funds boosted their holdings of the island’s shares by about $400 million in the first two trading sessions of this week, according to data compiled by Bloomberg.

Commodities

Crude oil slipped 0.9 percent to $42.63 a barrel in New York, after jumping 2.9 percent in the last session as the Organization of Petroleum Exporting Countries predicted the current bear market in the commodity would be short-lived. The group said Monday its members will hold informal talks next month and that there are “constant deliberations” over stabilizing the market.

“Nobody seriously thinks that OPEC will come up with anything that will tighten supply,” said Michael McCarthy, chief strategist at CMC Markets in Sydney. “Having bounced off the support near $40, and without any further supply coming online, we’re moving toward the middle of the trading range of about $44 to $45.”

Copper declined 0.8 percent in London, while zinc retreated from a one-year high. Gold slipped 0.2 percent to about $1,332 an ounce.

Stocks

The Stoxx Europe 600 Index was down less than 0.1 percent, while the MSCI Asia Pacific Index added 0.4 percent. Japan’s Topix index rose 0.9 percent, while Hong Kong’s Hang Seng Index retreated 0.2 percent from its highest close since November.

“The health of the U.S. economy continues to support the market,” said Yutaka Miura, senior technical analyst at Mizuho Securities Co. in Tokyo. “Many Asian markets are reaching new highs, and behind that is the strength of the U.S. economy.”

Australia & New Zealand Banking Group Ltd. shares jumped 2.9 percent to a seven-month high after the lender said it had boosted capital and reduced low-returning assets. Office-equipment maker Brother Industries Ltd. soared 19 percent and Nissin Foods Holdings Co. climbed more than 6 percent in Tokyo after the companies reported earnings.

Futures on the S&P 500 Index were little changed, after the gauge slipped 0.1 percent from a record on Monday.

Bonds

India’s 10-year bond yield fell five basis points to 7.12 percent. The RBI kept the repurchase rate at a five-year low of 6.50 percent, a move predicted by 27 of 29 economists in a Bloomberg survey. Two forecast a cut to 6.25 percent.

The yield on Chinese sovereign bonds due in a decade fell three basis points to 2.72 percent, matching a January level that was the lowest since 2009. Demand for the relative safety of government debt has been spurred by a rising number of company defaults, with a Chinese shipbuilder becoming the latest to renege this week. At least 18 domestic yuan bonds have now defaulted this year, exceeding the seven for all of 2015.

The yield on U.S. Treasuries due in a decade declined by two basis points to 1.57 percent, having been little changed in the last session. It jumped nine basis points on Friday, when better-than-expected U.S. jobs data spurred speculation the Fed will raise interest rates this year.

Source : bloomberg