Pound rises after poll boosts Tories but Trump Hong Kong decision weakens stocks

Sterling hits seven-month high against the euro after YouGov poll suggests majority for the Conservatives; global stocks skittish after US backs protesters

The pound traded at highest in seven months against the euro, after a poll showed Boris Johnson’s Conservatives are likely to win next month’s UK general election. However, across broader markets, stocks fell following President Donald Trump’s decision effectively to back Hong Kong protesters, dashing optimism over a possible trade deal with China.

A YouGov poll late on Wednesday showed the Conservative Party on course to secure a majority at the December 12 election, when Britons vote for the third time in just over four years, ahead of the January deadline to leave the EU.

Against the euro, the pound was ended down around 0.22 per cent on the day at 85.29 pence, having dropped from a session peak of 85.275 pence, its highest since early May. Against the dollar, sterling was broadly flat at around $1.2095, having risen to $1.2951 during the day.

“With the Conservative Party leading the polls, GBP is likely to gain over the next one to two months as we get more clarity on the Brexit path,” said ING analyst Petr Krpata.

UK stocks did not enjoy the same strength, echoing the weaker tone across European and Asian markets. With US markets closed for the Thanksgiving public holiday, volumes on European exchanges were subdued.

On Wednesday Trump signed into law a bill backing protesters in Hong Kong, prompting China to warn Washington that it would take “firm countermeasures”, Reuters reported.

With tensions growing between the two sides, traders and investors fear that a potential phase-one deal that many hoped would be signed in January might be delayed.

The FTSE 100 closed down 0.2 per cent on the day at 7,416.43 points, but was just shy of its highest level in three months. Traded volume was about 604 million lots, little changed from the previous day, but about two thirds of that on November 26.

The FTSE hit its lowest in eight months in early October, but has recouped all those losses, after the UK parliament agreed to request a Brexit extension.

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On other European markets, the growing tension between the US and China continued to drive trade.

Germany’s DAX closed down 0.3 per cent at 13,245.58 points, while the pan-European Stoxx 50 index lost 0.2 per cent on the day to close at 3,704.65 points. Export-sensitive auto stocks such as BMW and Daimler accounted for most of the downward pull, along with pharmaceutical maker Bayer.

Traded volume in Frankfurt came in around 37 million lots, around half of the volume of the previous day, according to the exchange.

Meanwhile, the oil price fell for a second day in a row, under pressure from a surprise increase in US commercial inventories of crude, often seen by traders and analysts as a sign of softness in demand, both domestic and for export.

Brent crude futures were last down 0.5 per cent at $62.70 a barrel, while US futures, which are more sensitive to US inventory data, were down 0.8 per cent at $57.80 a barrel.

Copper, which is highly exposed to the global economic cycle, fell by 0.9 per cent on the London Metal Exchange to around $5,895 a tonne. Copper is up around 0.6 per cent this month, having been knocked back from three-month highs earlier in November by concern about progress between Washington and Beijing over trade. China is the world’s largest importer of copper.

Gold was up around 0.1 perc ent at around $1,456 an ounce.

FURTHER READING: Conservatives on course for comfortable majority in latest poll

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