Date
30 March 2017
Some analysts link the pound sterling's fall to a Financial Times report on Russia's VTB Bank’s plan to move its European headquarters out of London. Photo: Reuters
Some analysts link the pound sterling's fall to a Financial Times report on Russia's VTB Bank’s plan to move its European headquarters out of London. Photo: Reuters

Sterling to weaken further on Brexit concerns

Sterling weakened below 1.23 against US dollar on Tuesday on concerns of economic shock from Britain’s decision to leave the European Union.

The pound trade-weighted index slumped to an eight-year low of 74.

Some analysts linked the currency’s fall to a Financial Times report on plans by Russia’s VTB Bank to move its European headquarters out of London to Frankfurt, Paris or Vienna, which stoked worries that more financial firms would follow suit.

After the recent plunge, technical charts point to 1.20 as the next key support.

Underpinned by expectations of a rate hike, the US dollar gained moderately, with the dollar index reaching 97.27 on Tuesday, the highest since July 27.

CME Group’s FedWatch tool indicates a 70 percent chance that the Federal Reserve will raise rates in December.

Minutes of the latest meeting of the Federal Open Market Committee to be released on Wednesday would be scrutinized for more hints.

The Bank of Japan is expected to wait until next year before easing its monetary policy further unless a sharp spike in yen happens and hurts its economy, according to a Reuters poll.

The US dollar surged to 104 against Japanese yen on Tuesday.

Technically, the US dollar is likely to rally further against the yen after breaking a triangle formation.

The first upside target is 105, followed by 107.7 and 110.40. On the support side, 102.30, 101.70 and 100 are key levels to watch.

New Zealand’s central bank reiterated on Tuesday that further policy easing will be needed to boost the inflation rate.

The New Zealand dollar slipped to 0.706 from 0.71 after Reserve Bank assistant governor John McDermott said third-quarter inflation, to be announced on Oct. 18, is expected to be low.

The central bank’s target range of inflation is 1 to 3 percent, while second-quarter inflation was only 0.4 percent. The inflation has stayed below the target since late 2014.

This article appeared in the Hong Kong Economic Journal on Oct. 12.

Translation by Julie Zhu

[Chinese version 中文版]

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RT/CG

Sales director, Emperor Capital Group Limited; HKEJ columnist

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