Stocks rebound after BoE bond purchases but sterling slides

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© Reuters. FILE PHOTO: In this illustration taken on May 30, 2022, a woman holds sterling banknotes. REUTERS/Dado Ruvic/Illustration

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Tom Westbrook

SYDNEY (Reuters) – Asian shares rose on Thursday after the Bank of England launched an emergency bond-buying program to stabilise a violent sell-off of gilts, but the pound remained under pressure in volatile trading.

The Bank of England said it would buy up to 5 billion pounds ($5.4 billion) a day in long-term government bonds until October 14. It spent about £1 billion on Wednesday, and the yield on 30-year British government bonds fell 105 basis points, the biggest drop ever, according to Refinitiv records dating back to 1992.

The move boosted the pound and provided some relief to volatile market sentiment, but by mid-morning in Tokyo it was already struggling to find support, down 0.6% at $1.0818. [FRX/]

MSCI’s broadest index of Asia-Pacific shares outside Japan rose 1.5% and was on track for its best performance in a month. rose 0.9%. ()

“It’s a bit of a mess,” said ANZ economist Finn Robinson.

“It remains to be seen how long this calm and fresh optimism will last. On the one hand, this re-stimulus will boost rather than quell UK inflation, which is bad for bonds and sterling.”

The impact of the unfunded tax cuts announced last week in the U.K. reverberated in financial markets after sparking a slump in U.K. asset prices. The Bank of England’s intervention came as the dollar rose broadly after South Korea, India and Indonesia took steps to stabilize their financial markets this week.

U.S. Treasuries rallied overnight on gilt support, with the benchmark 10-year yield plunging 4% a day earlier, falling more than 20 basis points to 3.7472%. [US/]

Wall Street also rose, snapping a six-day losing streak and surging nearly 2%. [.N]

The sentiment paused the greenback’s gains and posted its worst day in 2-1/2 years as the greenback pulled back from its highs. However, it was soon stronger again in Asia on Thursday.

The dollar index was up 0.1% at 113.12, not far from a 20-year high of 114.78 set on Wednesday. The euro was down about 0.5 percent at $0.9695.

Meanwhile, the Australian dollar briefly rose on Thursday to trade just above $0.65 after the Bureau of Statistics’ new data series showed higher inflation figures for July and August. [AUD/]

A pullback in the dollar helped oil and gold gain, and those gains continued into the Asian session. Futures rose 0.2% to $89.50 a barrel. It was steady at $1,656 an ounce.

($1 = £0.9252)

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