Most of the Asian currencies gained on Friday, as yet undisturbed by shockwaves from a UK election result that has cast British politics into turmoil and could well delay Brexit talks. South Korea’s won led the gains, while the Singapore dollar and the Indian rupee inched down on the day. China’s yuan was trading flat after the central bank fixed its official guidance lower for a second straight day since it made changes to the midpoint mechanism last Friday.
“I think Asian currencies are today by and large, not overly affected by what is going on in the U.K.,” said Vishnu Varathan, head of economics and strategy at Mizuho Bank in Singapore. “Only if there is a clear indication of a distinct and clear knock on Brexit negotiations, you could possibly see some kind of sentiment spilling over into Asia.”
The election has left the United Kingdom with a hung parliament as the ruling Conservative Party lost its majority while still emerging as the largest party, in a result that has cast doubt over Prime Minister Theresa May’s leadership and over the course of Brexit talks due to start in just 10 days.
Having passed through other major risk events for global markets – including former FBI Director James Comey’s testimony to a U.S. Senate committee and a European Central Bank meeting that closed the door of more rate cuts – investors’ attention has turned to a Federal Reserve rate decision next week.
Most analysts expect a 25 basis point increase. Investors will be cautious ahead of the Fed’s decision, with investors eyeing any signals of more rate hikes later in the year, which would reduce the attraction of higher-yielding emerging market currencies, analysts said.