Update | Chinese yuan slides to 5-year low, pound slumps further in Brexit aftershock
Oil extends rout while investors continue to flock into safe haven assets such as yen, Swiss franc and gold
The People’s Bank of China on Monday cut the yuan’s fixing to the lowest level in five and a half years, while the British pound slumped further below US$1.34 in Asian trade, hovering near its weakest level in 31 years, as Britain’s stunning decision to break from the European Union continued to stir the markets.
The PBOC set the yuan’s reference rate at 6.6375 per US dollar, down 0.9 per cent from the previous fix, the biggest drop since August. Offshore yuan in Hong Kong weakened to 6.6749 per US dollar at 5.30pm, down 0.6 per cent from the prior session. Onshore yuan, which trades in Shanghai, also fell to 6.645 per US dollar, weaker by 0.5 per cent from the previous trading day.
From a structural perspective, the pound is extremely vulnerable
“The yuan continues to weaken in the face of a stronger USD following the Brexit vote. The fear is that this may revive concerns of further devaluation, which could be in the offing,” said Stephen Innes, senior trader at Oanda Asia Pacific. “I anticipate the risk theme to continue driving the investor sentiment, with the yuan trading off its back foot.”
Separately, the British pound fell 3 per cent to 1.3269 against the US dollar at 5.30pm on Monday, extending its largest one-day drop ever at the end of last week. On Friday, sterling at one point plunged more than 10 per cent to US$1.3230, its lowest level since 1985, before trimming losses to US$1.3676, off more than 6 per cent.
On Friday, vote tallies indicated that a majority of Britons wanted to leave the European Union (EU), spurring British Prime Minister David Cameron to resign. The results immediately rattled global financial markets and pummelled riskier assets.
“It is important to keep in mind that the Brexit fallout isn’t over. We are likely to feel aftershocks for weeks, perhaps months, to come,” Innes said. “We should expect more waves of risk-off sentiment to hit the market as the Brexit fallout intensifies.”