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Categorized | Currencies

Pound slips in Asia as Brexit fears bite

Posted on October 4, 2016

A bank employee counts pound notes at Kasikornbank in Bangkok, Thailand, October 12, 2010. REUTERS/Sukree Sukplang/File Photo©Reuters

Tuesday 06.00 BST. Sentiment in Asian markets was mixed as traders contended with worries over the UK’s decision to begin its EU exit in early 2017 and digested a mixed bag of local economic indicators.

The US dollar index, which measures the greenback against a basket of international currencies, was up 0.2 per cent at 95.905.

The pound was down marginally at $1.2838. It had weakened as much as 0.2 per cent earlier in Asian trade, dropping closer to a three-decade nadir against its US counterpart in the wake of Prime Minister Theresa May’s announcement that Article 50, the formal notification to EU partners of the UK’s departure from the bloc within two years, would be triggered by March next year. Sterling fell to $1.2796, its lowest level since 1985, on July 6 in the wake of the UK’s Brexit vote.

But analysts with Capital Economics cautioned that although “the latest dip in sterling has partly reflected concerns over the prospect of a ‘hard Brexit’, the currency’s depreciation should continue to cushion the economic impact of the vote to leave the EU”.

The Japanese yen fell 0.6 per cent to ‎¥102.25 against the dollar after official data showed the country’s monetary base expanded at its slowest pace since March 2013. Analysts at Barclays said the figures, plus the central bank’s latest survey showing companies’ lowered their long-term inflation expectations in September, potentially heightened the pressure on the Bank of Japan to ease further in 2016.

Japan’s broad Topix index was up 0.7 per cent while the Nikkei 225 rose 0.9 per cent.

In Australia the S&P/ASX 200 was off 0.2 per cent, pushed lower by the bank shares as executives at the first of the country’s “big four” banks faced the start of a three-day grilling from the House of Representatives Economics Committee, kicked off by news of new penalties and regulations for manipulating financial benchmarks.

Commonwealth Bank and Westpac both slid 0.6 per cent.

However, the Australian dollar was almost unchanged at $0.7671 after building approvals were revealed to have grown at their quickest pace in 10 months in August, and as the central bank left rates on hold as expected.

Hong Kong’s Hang Seng index was marginally higher, while shares on the mainland were faring somewhat better with the Shanghai Composite up 0.2 per cent and the technology-focused Shenzhen Composite rising 0.5 per cent.

Major fixed income markets were on the back foot. The yield (which moves inversely to price) on Japanese 10-year government bonds rose 1 basis point to minus 0.063 per cent, with the yield on US 10-year yields also advancing 1 basis point to 1.629 per cent in Asian trading. In Australia the yield on the 10-year benchmark sovereign bond climbed 17 basis points to 2.075 per cent.

Oil prices retreated, with Brent, the international benchmark, down 0.3 per cent at $50.74 a barrel after closing 1.4 per cent higher overnight at a six-week high. The US benchmark, West Texas Intermediate, remained below the $50 mark, sliding back 0.4 per cent to $48.61 after gaining almost 1 per cent on Monday.

Gold, which often moves inversely to the dollar, was down 0.1 per cent at $1,310.83 an ounce.

Futures tip European stocks to open 0.4 per cent lower and the S&P 500 index to open 0.1 per cent higher.

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