Asia shares track Wall Street higher, Treasury yields languish near lows

British Pound

Reuters: The pound rose to its highest in a month on Wednesday as the dollar retreated further after surging two days ago on the threat of sweeping U.S. tariffs, while the focus in UK markets turned to the Bank of England rate decision on Thursday. Sterling climbed to $1.2532 in morning trade in London, its highest since Jan. 7, and was last up 0.36% at $1.2526. The U.S. dollar index, which tracks the currency against six peers, fell 0.5% on Wednesday. It has receded since hitting a three-week high on Monday, when it jumped as much as 1.3% as the U.S. looked set to impose tariffs on Mexico and Canada.

The dollar has since fallen around 2.1% after both Mexico and Canada won a one-month reprieve on tariffs, although the U.S. and China increased levies on each other's exports. A 1% rally in the Japanese yen also knocked the dollar on Wednesday. Many economists think - and British officials are hopeful - that Britain will be spared the worst of U.S. President Donald Trump's aggressive tariff policies due to a more balanced trade situation between the two countries. That has helped the pound rise for three weeks against the euro as traders bet that the euro zone is at greater threat from U.S. levies. The euro was last steady against sterling on Wednesday at 83.11 pence.

Traders and investors expect the Bank of England to cut interest rates by 25 basis points to 4.5% on Thursday, reflecting a slowdown in British growth and a drop in previously stubborn services inflation. The Bank will also release new growth and inflation forecasts. The pound is down around 0.8% and 0.6% against the dollar and euro respectively so far this year as markets have priced in more BoE cuts due to slowing growth. "We expect the BoE to cut rates by 25 bp and easing guidance will be strengthened relative to market expectations," said Geoff Yu, senior market strategist at BNY.

"Similar to the ECB, at least one 25 bp cut per quarter should be in play as growth risks remain heavily to the downside, especially measured through household demand," he added. Money market pricing showed traders expected around 84 bps of BoE easing this year. The Bank started lowering its main rate from 5.25% in August.

US Dollar

Reuters: The U.S. dollar slumped to an eight-week trough to the yen and lingered near a one-month low versus sterling on Thursday, as investor nerves about an inflation-stoking global trade war abated. Japan's currency was also supported by rising expectations for further Bank of Japan interest-rate hikes with a central bank official advocating continued rate hikes, a day after strong wage data. Sterling was firm even with the Bank of England widely expected to cut rates by a quarter point later in the day.

The dollar sank 0.5% to 151.81 yen by 0140 GMT, the lowest since December 12, adding to a 1.1% slide on Wednesday. Sterling was steady at $1.2509, after rising as high as $1.2550 in the previous session for the first time since January 7. The euro was flat at $1.0401 after edging up 0.2% on Wednesday. The dollar index - which measures the U.S. currency against the euro, sterling, yen and three other major peers - stood at 107.57, not far from its overnight low of 107.29.

The index had jumped to a three-week high of 109.88 at the start of the week as Trump looked poised to impose 25% import tariffs on Mexico and Canada, but the countries won last-minute, one-month reprieves - although Washington did slap 10% tariffs on China. The offshore yuan strengthened slightly to 7.2775 per dollar. Canada's loonie was steady at C$1.4321 versus its U.S. counterpart after rising to the highest since December 17 at C$1.4270 overnight. The Mexican peso was steady at 20.5789 per dollar.

"It appears that the market has started to put the tariff threats against Mexico and Canada in the rear view mirror and is treating the China tariffs as business as usual," said James Kniveton, a senior corporate FX dealer at Convera. "Two U.S. rate cuts are still anticipated by the end of the year, but with the diminishing likelihood of tariffs contributing to inflation, there appears to be greater flexibility for the Federal Reserve." The next major test for the U.S. monetary policy outlook is monthly payrolls figures due Friday.

A quarter-point Fed cut is fully priced for July, with markets expecting 46.3 basis points of cuts by the December meeting, according to LSEG data. Meanwhile, market-implied odds for an imminent BoE rate reduction stand at 92%. For the BOJ, the market has priced in around 94.8% odds for a quarter-point hike by September. BOJ board member Naoki Tamura said on Thursday that the central bank must raise rates to at least 1% or so in the later half of fiscal 2025 with upward risks to prices rising. A day earlier, data showed a second-straight month of growth for real wages.

South African Rand

Reuters: South Africa's rand gained against a weaker dollar on Wednesday, as investors awaited President Cyril Ramaphosa's national address on Thursday and closely watched developments between the U.S. and China in their dispute over tariffs. At 1507 GMT, the rand traded at 18.55 against the U.S. dollar, about 0.7% stronger than its previous close. The dollar last traded about 0.6% weaker against a basket of currencies after China retaliated to tariffs imposed by U.S. President Donald Trump.

Ramaphosa will deliver on Thursday the annual State of the Nation Address (SONA), the first under his coalition government. Investors will pay particular attention to comments on reforms and fiscal discipline. "Rand sentiment hinges on SONA and U.S.-China trade war developments. Stronger messaging on reforms and fiscal discipline could support South African assets," said Andre Cilliers, currency strategist at TreasuryONE. "Investors remain cautious, with global trade tensions keeping risk appetite subdued," Cilliers added.

On the stock market, the Top-40 index closed about 0.3% higher. South Africa's benchmark 2030 government bond was firmer, with the yield down 4 basis points to 9.045%.

Global Markets

Reuters: Asia shares rose on Thursday, tracking gains on Wall Street following a see-saw session, while U.S. Treasury yields came under pressure after mixed economic data. European stock futures pointed to solid gains later in the day, extending their rally from the previous session in part due to a surge in healthcare stocks as sales of Novo Nordisk's blockbuster drug Wegovy more than doubled in the fourth quarter. Though many uncertainties remain under U.S. President Donald Trump's new administration, markets were for now relieved that things were not worse, particularly with regard to the tit-for-tat tariff moves between the U.S. and its major trading partners.

That helped lift global share markets and kept the dollar in check, giving some respite to its peers which had been heavily battered at the start of the week. "Relief is probably a good way to characterise the market mood," said Khoon Goh, head of Asia research at ANZ. "Also in respect to China, even though the tariffs have officially come into force since Tuesday and China has sort of retaliated, but the retaliation from the Chinese side is very measured." The People's Bank of China on Thursday again set a stronger-than-expected yuan midpoint fixing, countering concerns it might allow the currency to slide to offset the impact of tariffs on the country's exports.

That kept the onshore yuan steady around 7.2766 per dollar, while its offshore counterpart rose 0.07% to 7.2778. China's CSI300 blue-chip index reversed early losses to trade slightly higher, while the Shanghai Composite Index gained 0.13%. "Chinese authorities at this stage are not indicating or showing any intention of weakening the yuan as part of the response to the tariffs. I think that has definitely helped to calm the market down," said Goh. MSCI's broadest index of Asia-Pacific shares outside Japan advanced 0.28%, while Japan's Nikkei tacked on 0.28%. Nasdaq futures ticked up 0.04%, while S&P 500 futures rose 0.09%.

All three major U.S. stock indexes closed in positive territory on Wednesday, but the tech-heavy Nasdaq's nominal gain was held in check by disappointing earnings from Alphabet, which fuelled doubts about the payoff of investments in artificial intelligence. U.S. Treasury yields were hovering near their lowest in over a month on Thursday, as investors pondered the outlook for rates in the world's largest economy. Federal Reserve Vice Chair Philip Jefferson on Wednesday said he is content to keep the central bank's policy rate in its current position until policymakers get a better sense of the net effects of the Trump administration's policies on tariffs, immigration, deregulation and taxes.

Traders weighed his comments against mixed U.S. economic data releases which showed a stronger-than-expected pick-up in ADP's private payrolls data but a surprise deceleration in the services sector. Record high imports also pushed the U.S. trade deficit sharply wider. The benchmark 10-year Treasury yield was last little changed at 4.4201%, while the two-year yield edged slightly higher to 4.1889%. Futures point to just over 45 basis points worth of easing from the Fed by the year-end.

In currencies, the dollar was on the back foot. "The central vibe running through trade has been the solid bid in U.S. Treasuries, with the U.S. dollar finding increased selling flows across the G10 FX complex," said Chris Weston, head of research at Pepperstone. Against the dollar, the euro hovered above the $1.03 level and last bought $1.0398, while sterling held near a one-month high and was fetching $1.24995. The Bank of England announces its rate decision later on Thursday where it looks set to deliver a rate cut.

The dollar index, which measures the greenback against a basket of currencies including the yen and the euro, languished near its lowest in over a week at 107.61. The yen, meanwhile, rose 0.3% to 152.11 per dollar, helped by comments from Bank of Japan board member Naoki Tamura who said the central bank must raise short-term interest rates to at least 1% by the second half of fiscal 2025 to contain inflation risks. In commodities, oil prices rose, steadying from a sell-off the previous day after Saudi Arabia's state oil company sharply raised March oil prices.

U.S. crude edged 0.32% higher to $71.27 a barrel, while Brent crude rose 0.23% to $74.78. Gold resumed its rally to firm near a record peak, and was last at $2,869.62 an ounce. "Gold is one of three things: it's an inflation hedge, it's a dollar hedge or it's a disaster hedge," said Paul Nolte, senior wealth advisor & market strategist at Murphy & Sylvest in Elmhurst, Illinois. "For much of the last five or six years, I would say gold was a dollar hedge. Now it has become more of a hedge against things going wrong."

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