Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Banks

Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Categorized | Currencies

Pound faces less room for ‘fiscal reset’


Posted on September 27, 2016

An employee manually counts 20 pound sterling banknotes in this arranged photograph inside a Travelex store, operated by Travelex Holdings Ltd., in London, U.K., on Friday, Sept. 12, 2014. The pound, already suffering its worst month in more than a year, has the potential to tumble 10 percent should the Scots vote for independence from the U.K., according to economists surveyed by Bloomberg. Photographer: Matthew Lloyd/Bloomberg©Bloomberg

Could there be more trouble ahead for sterling?

Bank of America Merrill Lynch points out that in the first five months of the fiscal year, government borrowing declined at “only half the pace forecast” in the last Budget.

    According to BofA’s Robert Wood, that means “the economy may not have been as strong as it perhaps seems from the current GDP data running up to Brexit”. That, Mr Wood continues, implies increased borrowing forecasts at the UK’s Autumn Statement on its finances, due on November 23. It also reduces the chances of the announcement then of a “large discretionary fiscal stimulus”.

    Such an outcome could be keenly felt in dealing rooms.

    As Mr Wood points out, it “would likely come as a disappointment to markets that seem to us to have taken the Chancellor’s previous suggestion of a ‘fiscal reset’ a little too far”.

    And that is not all. The timing of the decision to trigger Article 50 of the Lisbon treaty, which starts the formal withdrawal process, could run deeper toward the May 2020 date of the next general election, says the bank.

    “We assume the additional volatility that creates, and the actions it could catalyse, will depress UK growth through 2017. We assume Brexit will prove to be a chronic shock, keeping growth depressed for an extended period, rather than an acute one [ie] a recession followed by recovery.”

    The pound — already down 13 per cent since polling day and well shy of its intraday peak of $1.3445 since the vote — could face further pain.

    michael.hunter@ft.com