Sterling slips before BoE rate call, oil boosts Asian shares

The British pound edged lower on Thursday as investors anticipated the Bank of England would cut interest rates to a record low later in the session, while a rebound in oil prices from four-month lows lifted Asian stocks.

Sterling slipped 0.1 per cent to $1.3301, but remained some distance from its three-decade low of $1.2798 hit almost a month ago. Meanwhile, MSCI’s broadest index of Asia-Pacific shares outside Japan rose 0.5 per cent, led by gains in resource shares, recovering some ground lost in Wednesday’s 1.5 per cent decline.

European shares were also set to open higher, with financial spreadbetter CMC Markets expecting Britain’s FTSE 100 to rise 0.1 per cent, and Germany’s DAX and France’s CAC 40 to start the day up 0.3 per cent.

The Bank of England is expected to cut its policy rate by at least a quarter percentage point to 0.25 per cent, making its first reduction since 2009, in a bid to ward off a recession that appeared increasingly likely after the United Kingdom voted to quit the European Union in June.

Cut factored in

Currency dealers were uncertain how sterling would react to a rate cut, as it has been largely factored in and the scale of sterling’s declines since the Brexit vote could limit the immediate downside.

“Given the market has a 25 basis-point cut priced at 100 per cent, one would expect a huge spike in GBP/USD if they fail to ease,” Chris Weston, chief market strategist at IG in Melbourne, wrote in a note. “But the real issue is whether they cut by 50 basis points and give a strong indication of quantitative easing in the September meeting.”

Britain’s economy is slowing at the fastest pace since the financial crisis, based on Markit’s monthly all-sector purchasing managers’ index on Wednesday, which recorded the steepest month-on-month decline on record. Many market players also believe the Bank of England may resume its multibillion-pound quantitative easing programme of government bond purchases.

Euro falls

The euro fell 0.1 per cent to $1.1141, retreating from its five-week high of $1.1234 touched on Monday. Oil, which jumped more than 3 per cent on Wednesday, extended gains in Asian trade on Thursday, as larger-than-expected draw on petrol stocks in the United States eased concerns about global supply glut.

Brent crude futures rose 0.7 per cent on Thursday to $43.38 per barrel, extending its recovery from Monday’s four-month low of $41.41. US crude gained 0.8 per cent to $41.16 per barrel. Energy shares also rose, contributing to gains on Wall Street, with the S&P 500 index closing up 0.3 per cent on Wednesday.

Japan’s Nikkei, which earlier touched a near-four-week low on Thursday, rebounded to end the day up 1.1 per cent as the yen weakened. Against the yen, the dollar was 0.4 per cent stronger at 101.650 yen, inching away from Monday’s low of 100.68 yen.

Bank of Japan deputy governor Kikuo Iwata said on Thursday that a comprehensive review of the central bank’s monetary policy next month would focus on the transmission mechanism and obstacles to its monetary policy. However, it is not meant to offer a specific direction for future monetary policy, he said. Japanese government bonds, which suffered their worst sell-off in more than three years this week on worries the Bank of Japan may be running out of realistic easing options, remained under pressure. The 10-year JGB yield rose one basis point to minus 0.080 per cent.

The broad increase in risk appetite helped Chinese shares recover some ground lost earlier. China’s CSI 300 index gained 0.2 per cent, and the Shanghai Composite advanced 0.1 per cent. Hong Kong’s Hang Seng climbed 0.6 per cent.

The dollar bounced back 0.7 per cent from Monday’s five-week low against a basket of six major currencies as investors looked to July payrolls data on Friday. The dollar index added 0.1 per cent to 95.647 on Thursday, though it is still far below a 4 1/2-month peak of 97.569 hit last week. – (Reuters)