Dollar rallies, UK bonds surge after Bank of England statement

Bloomberg

The dollar rises to another record after the White House talked down the prospect of weakening the currency, while UK bonds surged after the Bank of England (BOE) said it would carry out temporary purchases of long-dated government bonds to help restore order to the market.
US futures were mixed, while European stocks dropped for a fifth day as investors abandon the region at levels last seen during the euro area debt crisis, according to Citigroup Inc. strategists. Asian shares fall.
Health care shares rose after Eisai Co. and partner Biogen Inc. said their drug significantly slowed Alzheimer’s disease, while miners underperformed as the strong dollar and concerns about demand for raw materials sent commodity prices to the lowest level since January. Apple Inc. falls in premarket trading after a report that it scrapped plans to
increase iPhone production.
Meanwhile, natural gas prices in Europe surged after Russia said it may cut off supplies via Ukraine and the European Union said severe damage to two gas pipelines from Russia was deliberate. Putin moved to annex a large chunk of Ukrainian territory amid a string of military setbacks in its seven-month-old invasion.
UK 30-year yields had earlier jumped to the the highest since 1998 ahead of a green bond sale. The pound held losses amid mounting global criticism of the government’s fiscal plan. Chancellor of the Exchequer Kwasi Kwarteng will ask financiers not to bet against the
currency, Sky News reported without naming its sources.
The International Monetary Fund (IMF) called his unfunded tax cuts excessive and in need of revision, while Moody’s Investors Service warned that the UK risks doing lasting damage to the nation’s debt affordability. Mohamed El-Erian, chief economic adviser at Allianz SE, said the Bank of England now needs to raise interest rates by at least 100 basis points at its next meeting on November 3.
Meanwhile, the dollar’s rally brought losses to other currencies, including the onshore yuan, which tumbled to its weakest level since 2008. A regulatory body guided by the People’s Bank of China urged banks to protect the authority of the yuan fixing.
The yen remained near the key 145 mark versus the dollar and within sight of levels that have drawn intervention from Japan. Speculation the sliding yen will compel Japan to intervene further, potentially funded by Treasuries sales, weighed on US debt.
Ten-year Treasury yields fell after earlier rising to the highest since 2008.
“The fact we have such a strong increase in US yields is attracting flows into the US dollar,” said Nanette Hechler-Fayd’herbe, chief investment officer of international wealth management for Credit Suisse Group AG. “As long as monetary and fiscal policy worldwide are really not coming to strengthen their own currencies, we should be anticipating a very strong dollar.”
Adding to concerns, Deutsche Bank AG Chief Executive Officer Christian Sewing predicted a severe downturn in the lender’s home region and said the volatility whipsawing markets will continue for another year as central banks tighten rates to fight inflation.
European Central Bank President Christine Lagarde said borrowing costs will be raised at the next “several meetings,” with several Governing Council members favouring a 75 basis point hike in October.
In other news, Hurricane Ian became a dangerous Category 4 storm as it roars toward Florida, threatening to batter the Gulf Coast with devastating wind gusts and floods.