Pound drops as Johnson faces battle to pass Brexit bill

Forex traders sold sterling, pushing it back down below US$1.29, and it extended losses in Asia. — Reuters pic
Forex traders sold sterling, pushing it back down below US$1.29, and it extended losses in Asia. — Reuters pic

HONG KONG, Oct 18 — Sterling fell today as investors fret over Boris Johnson’s chances of pushing his Brexit deal through parliament, while Asian markets were mostly down after data showed China’s economy expanded at its slowest pace in nearly three decades.

The pound rallied almost to US$1.30 (RM5.44) yesterday following news that negotiators had hammered out an agreement that would avoid Britain leaving the EU without a divorce deal — a move many warn would be economically catastrophic.

However, joy was soon tempered by the realisation that the British prime minister faces an uphill task in getting the deal past lawmakers, with opposition MPs and even some in his own Conservative party saying they were against it.

Most importantly, Northern Ireland’s Democratic Unionist Party (DUP), which props up Johnson’s government, said it was “unable to support these proposals”.

Forex traders sold sterling, pushing it back down below US$1.29, and it extended losses in Asia.

Focus is now on a crucial vote on the deal pencilled in for tomorrow.

“Much will depend on the PM’s ability to get some if not all DUP and (Scottish National Party) MPs onside, in addition to also getting the backing from the 21 ex-Conservative MPs he expelled from the party last month,” said National Australia Bank’s Rodrigo Catril.

“Rejection of the deal might well see more political brinkmanship around a ‘no-deal’ Brexit, but the most likely scenario would be yet another extension of the 31 October Brexit date.”

Jeffrey Halley, senior market analyst at OANDA, said whichever way the vote goes, “traders should prepare themselves for some severe volatility on Monday morning, with multiple big-figure moves a strong possibility”.

In early trade London stocks eased 0.4 per cent, Paris shed 0.5 per cent and Frankfurt was flat.

China growth slows further

Asian equity markets were mostly lower after China said its economy expanded six per cent in the third quarter — marking the slowest pace in 27 years — as leaders struggle to address weak domestic demand and the long-running US trade war.

The reading was a drop from the previous three months but in line with an AFP forecast and the government’s 6.0-6.5 per cent target for the year.

While the National Bureau of Statistics said the economy “maintained overall stability”, it added that it “is under mounting downward pressure” from weakness at home and abroad.

Shanghai ended down 1.3 per cent with Stephen Innes at AxiTrader saying traders were concerned the figures were not weak enough to prompt the Chinese central bank to embark on a big stimulus drive.

“With the People’s Bank of China, who arguably have plenty of policy ammunition to right the ship, probably unwilling to turn on the monetary taps, investors are taking risk off the table,” he said in a note.

Hong Kong was off 0.5 per cent amid concern over the possibility of more violent protests over the weekend, while Sydney closed down 0.5 per cent and Singapore eased 0.4 per cent.

Seoul shed 0.8 per cent and Wellington lost 0.7 per cent, with Taipei and Manila also lower. But Tokyo closed 0.2 higher at a 10-month high, while Mumbai and Jakarta also edged up.

Hopes for the China-US trade talks were given a lift after Beijing’s commerce ministry said negotiators have “accelerated efforts” to hammer out details of last Friday’s mini-deal and were holding talks on moving on to the next phase of a wider agreement.

Donald Trump said Wednesday he hopes to sign the deal with President Xi Jinping at the Apec summit in Chile next month.

“A meaningful de-escalation in US-China trade frictions would help alleviate some of the market’s most bearish concerns, and at a minimum, it could ease the... headwinds,” said Innes.

A sense that tensions are easing provided a lift to high-yielding, riskier currencies such as the South Korean won and Australian dollar.

And the Turkish lira jumped more than one per cent after Ankara said it would pause military operations in northern Syria for five days and US Vice President Mike Pence said Washington would not impose any fresh sanctions. — AFP

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