Sterling shaken by UK election result

The shock outcome saw the pound shed close to 2 per cent, on fears the political turmoil could delay and complicate Brexit talks, due to start in 10 days

PUBLISHED : Friday, 09 June, 2017, 1:49pm
UPDATED : Friday, 09 June, 2017, 1:49pm

The Chinese Yuan weakened on Friday morning as the US dollar held steady, shrugging off any potential market moving risks brought about the testimony of former FBI director James Comey.

Sterling slumped nearly 2 per cent as UK vote projections showed that the ruling Conservative Party, led by Prime Minister Theresa May, would fall short of an overall majority which raises many questions about where the country goes from here, as Brexit negotiations loom.

The People’s Bank of China on Friday set the yuan reference point against the US dollar at 6.7971, 0.06 per cent or 41 basis points, weaker than on Thursday.

By Friday at 12.46pm, Onshore yuan, which is mainly traded in Shanghai, was at 6.7980 yuan per dollar, with a minimal 0.01 per cent drop from Thursday.

Offshore yuan, which is traded in Hong Kong, was trading at 6.7852, a 0.04 per cent rise.

“The yuan is being tuned to soften a bit as the government is still adjusting the rate in the process of appreciation,” said Jasper Lo Cho-yan, chief strategist at King International.

Lo expected the yuan to be adjusted within the range of 6.7986 to 6.72 in the short run.

In one of the most eagerly anticipated US congressional hearing in years, Comey told lawmakers the Trump administration had lied and defamed him, and the Federal Bureau of Investigation, after the president dismissed him on May 9.

Lo said the dollar remains steady as Comey finished giving his testimony, leading to a softening in the yuan.

“But in the foreseeable future, China and the US have matching goals as one wants to strengthen (yuan) and the other wants to weaker (dollar) for trade, “ Lo said.

Lo said China would need a stronger yuan to stabilise market confidence after being downgraded by credit rating company Moody’s in late May.

The pound had dipped 1.49 per cent lower by 1pm on Friday as polls in the UK suggested the ruling Conservatives were unlikely to end up with a majority in parliament.

The pound softened to US$1.2763, down from US$1.2956.

“The uncertainty during vote-counting will continue to leave the pound at a low rate throughout the day,” Lo said.

Sterling could remain under pressure and could dip down as low as US$1.2350, according to Lo.

The euro dropped 0.04 per cent to trade at US$1.1209 per US dollar after the European Central Bank announced it would keep monetary policy unchanged on Thursday.

The Hong Kong dollar fell lower to 7.7967 per US dollar. Lo said it could touch the alarming level of 7.8 later in the day or early next week, which would prompt local banks to consider raising interest rates.

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