Currencies Gripped by Political Risk

Political risks rippled across foreign-exchange markets with the pound, Turkish lira and South Korean won leading declines.

Sterling dropped to a 10-week low after the Prime Minister Theresa May indicated she prioritized regaining control of immigration during Brexit negotiations, while tensions between North and South Korea and debates on constitutional changes in Turkey put an index of developing currencies on track for the steepest drop in three weeks. Telecoms and real estate were among the biggest losers in European shares, while oil dropped for the first time in four days. Gold rose as investor holdings posted the first back-to-back increase since the U.S. election.

Currencies, not bonds, have become the preferred way for investors to express displeasure with political developments, because they are seen as less vulnerable to intervention. May said Sunday that negotiations on Brexit will be about “getting the right relationship, not about keeping bits of membership.” A so-called hard Brexit may push the Bank of England to keep rates lower for longer, while weakening the pound and supporting foreign-focused companies in the main stock index.

“Politics is a much more important factor these days for currency markets than it used to be,” said Adam Cole, head of global foreign-exchange strategy in London at Royal Bank of Canada. “There is a lot more political uncertainty now. ”

Bloomberg

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