© Reuters. Pound snaps win stretch over friction with China
(Bloomberg) – From saber-rattling with China to fresh fears of Brexit, a unique UK set of risks is to remove the skins from the pound.
snapped his longest win frame in nearly three months, slipping against almost all of his group-of-10 peers as the U.K. pleads against a row with Beijing about Hong Kong.
Two large British banks operating in Hong Kong, HSBC Holdings Plc (LON 🙂 and Standard Chartered (OTC 🙂 Plc, distanced themselves from Prime Minister Boris Johnson’s criticism of Beijing’s planned introduction of a security law in the former British territory.
The banks’ move to support China came as a reminder of the strength of Britain’s business relations with Hong Kong, according to Jane Foley, head of foreign exchange strategy at Rabobank in London.
“This is a question that should be carefully monitored,” she said.
Johnson has said he will give as many as 3 million Hong Kong residents the chance to seek refuge and a new life in the UK. if China continues with the legislation.
England. is also taking steps to exclude Huawei from its fifth generation of mobile networks by pooling potential replacements, another move likely to anger Beijing.
List of risks
It adds a new dimension to the international political uncertainty in London, where the government is already in conflict with the EU on trade and the next round of negotiations is due to close on Friday.
Brexit fears were highlighted this week as the central bank told the U.K. lenders to prepare for a no-deal scenario when the transition period expires in December.
As the pound’s larger lift from a weaker dollar disappears, additional clouds of talk of negative interest rates from the Bank of England such as the U.K. gather. struggling with what could be the worst recession of 300 years.
“The risk appetite eases, the market reflects in the tight Brexit schedule following the BOE warning,” said Jeremy Stretch, head of G-10 currency research at the Canadian Imperial Bank of Commerce in London.
He also pointed to concerns about further coronavirus infections, not least among lawmakers, adding “Covid in Parliament is not a” good look. “
This may also add to the pound’s resilience in recent days with a lack of evidence of deteriorating conditions at Brexit talks enough to keep investors optimistic.
Feeling sterling is at least apart from mid-March according to options, while implied volatility shows no real concern over the month-end deadline to extend the transition period.
But as the rally fades, attention could soon turn to the need for progress between London and Brussels.
For Rabobank’s Foley, this is likely to be the next focus. “I wanted to put Brexit as the biggest problem for the pound in the short term,” she said.
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