The Hong Kong Dollar (HKD) edged higher against the Pound (GBP) and was able to move away from a two-year low against the US Dollar as the markets deemed escalating pro-democracy protests as just ‘political noise’.
The attitude of the markets over the protests is similar to what has been witnessed over the past year regarding the conflicts in Ukraine and the Middle East.
Despite those events there was relatively little in the way of the markets taking a risk averse attitude.
‘It’s just political noise. If the protests die out, then volatility will decrease and the Hong Kong Dollar will recover,’ said Tim Condon, head of Asia research at ING.
Even as tens of thousands of pro-democracy protestors clashed with police and forced the closure of a large portion of the islands, financial district the Hong Kong Dollar was able to regain ground lost in the previous session.
The protest movement made up mostly of students are demanding the resignation of Hong Kong’s Chief Executive Chun-Ying Leung. The protesters also want Beijing to give Hong Kong a free vote for its next leader, something Beijing has rejected.
Despite the escalating protests, the markets are remaining calm over the situation as they put their faith in the Hong Kong Monetary Authority (HKMA) to see the economy through the uncertainty. It said that it would provide the banking system with liquidity if needed and requested that lenders strengthen their cash management as China prepares to enter a weeklong holiday period.
‘Over the last 30 years, the Hong Kong Dollar has withstood a number of challenges. We have full confidence that it will withstand this one. The HKMA has plenty of tools to support the currency,’ said an analyst in a phone interview with Bloomberg.
The Pound meanwhile experienced volatility due to the release of mixed economic data. The currency weakened against most of its major peers as consumer confidence, house prices, current account and business investment data all came in below economist forecasts.
Restraining further losses however was a report that showed that the UK economy expanded at a faster pace than initially expected in the second quarter of the year.
Hong Kong Dollar to Pound Sterling Exchange Rate Forecast
The Hong Kong Dollar looks set to remain volatile over the coming days as protestors called for renewed action on Wednesday. Depending on whether the demonstrations remain peaceful, the currency could rally further. However, if the authorities launch a crackdown then the currency is likely to weaken.
