The pound yesterday hit multiyear highs against peers after a convincing Conservative Party win in the UK election, which is expected to clear the Brexit political gridlock that has hounded Britain’s markets for years.
The lifting of one major cloud hanging over currency markets came amid signs another might be clearing with reports of a possible breakthrough in Sino-US trade negotiations pushing the Chinese yuan to a four-month top and nudging the Australian and New Zealand dollars higher.
“We’ve already seen a strong reaction in the pound from the exit poll,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.
Photo: Bloomberg
“We also see a rise in stock futures in reaction to two very important pieces of news for markets. This should support global growth. The yuan can also go higher, but it depends on how much [US] dollar strength we get,” he said.
Against the euro, sterling rose about 2 percent to as high as ￡0.8280, the highest since July 2016, which is shortly after the Brexit referendum that hammered the currency.
The pound surged more than 2 percent to reach US$1.3516, the highest since May last year, before settling at US$1.3469.
That contrasts with the more than 10 percent plunge that immediately followed Britain’s vote to leave the EU in June 2016, which wiped US$2 trillion off world markets.
Johnson’s commanding win would empower him to deliver Brexit on Jan. 31.
However, there is still some uncertainty because Britain will then enter a transition period during which it will negotiate a new relationship with the remaining 27 EU states.
In Asia, the yuan gapped higher. A successful scaling back of trade tension would relieve one major headwind to global economic growth, which suggests lower demand for the safe-haven yen.
Avoiding new tariffs should also be a boost to China’s slowing economy, which should draw more investors to the yuan.
In the onshore market, the yuan surged to 6.9570 against the US, the strongest level since Aug. 2.
In the offshore market, the yuan pulled back slightly to 6.9672 per US dollar, after surging more than 1 percent on Thursday to the highest since Aug. 1 due to relief about a resolution to trade friction.
The Australian dollar rose 0.2 percent to A$0.6925 after briefly touching the highest since July. The New Zealand dollar also jumped to NZ$0.6636 to reach the highest since July.
The yuan rallied while the yen fell sharply late on Thursday after Bloomberg News reported that US President Donald Trump signed off on a trade deal with China that would delay a new round of tariffs scheduled for tomorrow.
Talks between the world’s two economic superpowers have been fractious, so investors are focused on official confirmation of the deal from both sides to be sure that an agreement is actually in place.
Against the dollar, the yen fell 0.28 percent to ￥109.63, the weakest since Dec. 2.
The euro rose 0.35 percent to US$1.1171, slightly below its highest since Aug. 13.
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