Euro, pound hold gains on dollar but Asia markets struggle

[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, but equity markets struggled to recover from last week's losses.

The greenback tumbled after the Bank of England, European Central Bank and 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 between the Federal Reserve, which has been in a tightening mode for years and supportive of the dollar.

Since the turn of the year the euro has jumped about ten per cent 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 gains.

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 the morning 0.1 per cent 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 slipped 0.1 per cent and Shanghai gave up 0.4 per cent, despite a better-than-expected private survey showing Chinese manufacturing expanded last month.

Sydney and Singapore edged up but Seoul, Wellington, Taipei and Manila were also lower.

In China a link opening up the country's US$10 trillion bond market to the world began on Monday, with traders able to buy in through the connect programme in Hong Kong.

However, the buying was muted in early exchanges, with the yield on 10-year government debt edging up slightly.

AFP