Falling British Pound to 'Have Limited Impact' on Chinese Yuan

The British pound reached a new 31-year low after Asian markets opened on Wednesday. Continuing Brexit jitters sent the British currency to 1.2961/$1.

On Tuesday, the British pound dropped below 1.3121/$1, the lowest since 1985.

The pound has been the biggest loser from Britain’s decision to leave the EU, and almost all the analysts who’ve changed their forecasts since the referendum are expecting the currency to remain weak, Bloomberg reported.

"There's a lot of nervousness. Post-Brexit issues are starting to sink in," Jeff Kravetz, senior investment strategist at the Private Client Reserve at US Bank in Scottsdale, told Reuters.

"The heady post-Brexit rally looks to be at an end, with all major US and European markets down overnight except the FTSE 100, which moved higher only as a response to the further decline in the pound," market analyst Angus Nicholson was quoted as saying by CNBC.

Meanwhile, global markets were hit by a slowdown in the manufacturing and service industries in Europe. The US Dow Jones index fell nearly 0.6 percent, and the S&P 500 dropped nearly 0.7 percent. In Europe and Asia, major markets were mostly weaker.

Chen Fengying, an expert at China's Institute of Contemporary International Relations, commented on the possible consequences of the pound’s fall for the yuan and Hong Kong dollar.

"The continuing depreciation doesn’t have a direct impact on the yuan. Its influence is limited to some external instability and uncertainty. China is not much affected by the eurozone. Beijing is rather part of the dollar zone. The same is for the HK dollar which is bound to the US dollar," she told Sputnik.

The British pound is not a European currency; it is the independent currency of a European country. After David Cameron resigns as British prime minister he will not regulate the country’s monetary policy.

In this context, the European Union is demanding from London to abandon its role as a global financial center. This is another factor provoking the fall of the British pound. But the influence of this uncertainty on the Chinese and Hong Kong currencies will be limited, the expert said. Currently, many currencies are depreciating. China is seeing an economic downturn and devaluation of its currency. At the same time, the Chinese government is conducting reforms over the yuan exchange rate.

"Brexit is a problem for the West, not for the East. The main problem now is how the situation in the West will develop. The reason for the current concerns is not the British pound itself, but the future of the European currency. Being regulated, the yuan foreign exchange rate is floating. Currently, there is no turmoil in the Chinese market, and there is no massive capital flight from China," the analyst concluded.