Sterling sparkles after election poll, yuan up on trade deal reports

The pound rose to a three-and-a-half year high versus the euro and the highest in more than a year versus the dollar after exit polls suggested a win for the Conservatives, which should help ensure the United Kingdom’s (UK) smooth exit from the European Union (EU).

The Chinese yuan rose in offshore trade and the Japanese yen fell after a source said that the United States (US) and China have agreed some tariff reductions and a delay on tariffs set to go effect on December 15.

The early results suggest the election will relieve almost four years of uncertainty about when Brexit would take place, which should be supportive of the pound.

A successful scaling back of trade tension would relieve one major headwind to economic growth, which suggests lower demand for the safe-haven yen. Avoiding new tariffs should also be a boost to China's slowing economy, which should draw more investors to the yuan.

“We've already seen a strong reaction in the pound from the exit poll,” said Michael McCarthy, chief market strategist at CMC Markets in Sydney.

“We also see a rise in stock futures in reaction to two very important pieces of news for markets. This should support global growth. The yuan can also go higher, but it depends on how much dollar strength we get,” McCarthy added.

Against the euro, sterling rose around 2 per cent to as high as 82.80 pence, the highest since July 2016, which is shortly after the Brexit referendum that hammered the currency.

The pound surged by 2.2 per cent to $1.3474, reaching the highest since May 2018.

The pound plunged more than 10 per cent in the immediate aftermath of Britain's vote to leave the European Union in June 2016, while $2 trillion was wiped off world markets.

The exit poll, which suggested UK Prime Minister Boris Johnson would get a majority of 86 - the largest of any Conservative leader since Margaret Thatcher won in the 1980s - should empower him to deliver Brexit on January 31.

Official results will be declared over the next seven hours.

Even if Brexit is completed on Jan. 31, there is still some uncertainty because Britain will then enter a transition period during which it will negotiate a new relationship with the remaining 27 EU states.

In the offshore market, the Chinese yuan rose 0.33 per cent to 6.9273 per dollar, after surging on Thursday to the highest since Aug. 1 due to relief about a resolution to trade friction.

As part of the trade deal, China has also agreed to purchase $50 billion of US agricultural goods next year, sources familiar with the talks told Reuters.

The yuan rallied and the yen fell late on Thursday after Bloomberg News reported that US President Donald Trump signed off on a trade deal with China that will delay a new round of tariffs scheduled for December 15.

A trade dispute between the US and China over Chinese trading practices that Washington says are unfair has dragged on for almost two years, making the stand off the biggest risk to the global economy.

Against the dollar, the yen fell to 109.595, the weakest since December 2.

The dollar index against a basket of six major currencies fell 0.35 per cent to 96.736, approaching the lowest since July this year.