© Reuters.

(Bloomberg) — From saber rattling with China to fresh fear about Brexit, a uniquely British set of risks is taking the shine off the pound.

snapped its longest winning streak in nearly three months and slipped against almost all its Group-of-10 peers as the U.K. careens toward a row with Beijing over Hong Kong.

Two major British banks which operate 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 imposition of a security law on the former British territory.

The banks’ move to support China came as a reminder of the strength of the U.K.’s business links with Hong Kong according to Jane Foley, the head of currency strategy at Rabobank in London.

“This is an issue that certainly needs to be watched closely,” 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 U.K. if China presses ahead with the legislation.

The U.K. is also taking steps to exclude Huawei from its fifth-generation mobile networks by lining up 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 at odds with the European Union over trade, and the next round of talks set to end on Friday.

Brexit fears were highlighted this week when the central bank told U.K. lenders to prepare for a no-deal scenario when the transition period expires in December.

As the pound’s wider boost from a weaker dollar fades, further clouds are gathering with talk of negative interest rates from the Bank of England as the U.K. grapples with what could be the worst recession in 300 years.

“Risk appetite is easing, the market is reflecting on the tightening Brexit timetable following the BOE warning,” said Jeremy Stretch, head of G-10 currency research at Canadian Imperial Bank of Commerce in London.

He also pointed to concern about further coronavirus infections, not least among lawmakers, adding “Covid in Parliament is not a ‘good look.’”

That could also add to doubts about the pound’s resilience in recent days, with a lack of signs of worsening relations at the Brexit talks enough to keep investors upbeat.

Sentiment on sterling is at its least bearish since mid-March, according to options, while implied volatility shows no real concern about the month-end deadline to extend the transition period.

But as its rally fades, attention could soon turn to the need for progress between London and Brussels.

For Rabobank’s Foley, that is likely to be the next focus. “I would put Brexit as the bigger issue for the pound near-term,” she said.

©2020 Bloomberg L.P.


Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.

Source link