FX round-up: Pound steady as traders mull US-China trade, no-confidence vote in Commons

The pound finished a smidgen higher on Tuesday as risk appetite recovered in the wake of the Chinese central bank's decision to rein in the recent slide in the country's currency.

Overnight, the PBoC set the daily fix for China's currency, the yuan, at 6.9683 against the US dollar, which was stronger than the 6.9736 midpoint that Reuters had anticipated.

Nevertheless, analysts were exceedingly cautious in their assessments of the latest move out of the PBoC and of the US Treasury's decision to label China a "currency manipulator" and its implications.

Commenting on the latter, Andrew Hunter at Capital Economics said that: "it illustrates how rapidly tensions are escalating and suggests that a resolution to the trade

conflict is further away than ever."

Yet Hunter did not expected to see the US intervening in foreign exchange markets.

He did however forecast that the Trump administration might raise its new tariffs on Chinese goods from 10.0% to 25.0% before 2019 was out.

As of 1713 BST the US dollar was retreating by 0.44% against the Chinese yuan to 7.0198 and was to be found near its session lows.

Against that backdrop, cable was essentially unchanged at 1.21440, while against the euro, Sterling was 0.06% higher to 1.0846 but off an earlier high at 1.0922.

In parallel, euro/dollar was off by just 0.01% at 1.12018 and US dollar/yen was up by 0.4% to 106.3870.

Also helping sentiment towards the pound, even if only fleetingly, Labour leader, Jeremy Corbyn, reportedly signaled his intention of calling a no-confidence vote against the Prime Minister when Parliament returned from its summer recess, in September.

Should Boris Johnson lose, then he would have until 18 September to demonstrate that he can command a majority in the House of Commons and until 19 September to trigger a general election.

But on Brexit too, analysts where at pains to point out how the implications of a no-confidence vote were wide ranging.

"We continue to be asked exactly what we think will happen with Brexit, a question that we really cannot answer," said analysts at Jefferies.

"Events could move very quickly after 3 September. A vote of no confidence seems almost inevitable. Could this quickly result like May 1940 in a national unity government being formed, to manage Brexit? [...] Are Boris Johnson and Dominic Cummings secretly hoping that Parliament takes control and if there is an election, they can win a majority without the DUP, resulting in a much more managed Brexit?"