UK Announces China Sanctions

Relations between the UK and China have deteriorated further this week amidst the UK announcing sanctions against China over its human rights abuses against the Uighur Muslim minority group in the country. The UK announced sanctions on four high level Chinese officials this week over the actions taken against the Muslim people in the Xinjiang province. The moves comes amidst a similar stance taken by the EU, which also imposed sanctions against China for the first time since 1984, the US and Canada.

Biden Pushing For Alliances Against China

There had been no prior warning given to China over the UK’s decision to take action and, up until recently, the UK government had resisted calls to impose sanctions. The pressure to make the move is likely to have come from the US where the new administration, under Democrat Joe Biden, is making a concerted effort to rebuild Western alliances (as well as Indo-Pacific) alliances against China.

China Retaliates

In typical style, the Chinese administration was very quick to retaliate, announcing similar countermeasures against nine UK citizens, including five MPs. The nine citizens included in the sanctions are now banned from entering China, Hong Kong and Macau and will have any property in China frozen as well as having any Chinese citizens and institutions blocked from dealing with them.

Tensions Elevated Following Hong Kong Dispute

This latest dispute marks the continued demise of UK/China relations. Last year, tensions emerged over China’s handling of pro-democracy demonstrators in Hong Kong and the subsequent National Security Law it imposed in Hong Kong. In response, the UK government offered any fleeing Hong Kong citizens a visa to enter the UK. The move provoked China who warned the UK not to interfere with its internal dealings and relations have been increasingly frosty since then.

Economic Risks For The UK

This latest fracas between the two countries poses risks for the UK, however. In a recent review, the UK government noted that China is a "systemic competitor" and "the biggest state-based threat to the UK's economic security.” Given that the economy is already in a fragile state as a result of the pandemic and still dealing with the fall-out from Brexit, this news is likely to do little to boost investor sentiment towards the UK.

Technical Views

GBPUSD

The sell off in GBPUSD this week has seen price breaking below the rising channel from 2020 lows as well as the 1.3747 level. Price is currently fighting to reclaim that level though, while below the broken channel, the market is vulnerable to a further drop towards 1.3516 next.

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