Chinese yuan touches fresh five and half year low as British pound plummets on renewed Brexit fallout fears
The Chinese yuan continued its slide on Wednesday after the Chinese central bank fixed the currency at a fresh five and a half year low against the US dollar, while the British pound skidded to a new 31-year low versus the greenback on renewed concerns about the Brexit fallout.
The People’s Bank of China set the yuan’s mid-point rate at 6.6857 per US dollar, down 263 pips from the previous fix. It marked the lowest level since November 2010. On Tuesday, the PBOC also cut the reference rate by 122 pips to 6.6594.
“A slide in the yuan continues because China’s policymakers are guiding a path of depreciation to support waning export markets,” said Stephen Innes, senior trader at Oanda Asia Pacific.
Offshore yuan in Hong Kong declined 0.2 per cent to 6.7024 per US dollar as of 5.11pm, according to data from Bloomberg. The onshore yuan in Shanghai closed at 6.6900 per dollar as of 4.30pm, down 0.3 per cent to a fresh low point in five and half years.
The British pound sank further as fears resurfaced overnight about the Brexit impact after three UK property funds were frozen due to a surge in investor withdrawls.The sterling tumbled as much as 1.7 per cent to touch US$1.2798 per pound, its weakest level since 1985, and stood at US$1.2937 as of 5.11pm.
Although British Trade Minister Mark Price said in Hong Kong that it is the right time to buy British products as the sterling has devalued, analysts see more room for the pound to fall.
“Markets will be watching out for more capital outflows, and the accompanying rate cut expectations in the near term. We expect the sterling to drift to US$1.25 over coming weeks and to as low as US$1.20 in 2017,” said Christy Tan, NAB head of markets strategy and research in Asia.
The economy will continue to show signs of strains and cracks after a number of UK asset managers led by Standard Life suspended redemptions on their property funds, while on the political front there will be lack of clarity until September 9 when a new Prime Minister is chosen, Tan said.
Tan expects investor demand for safety will stay elevated as fears of financial contagion persist.
The yuan has appreciated over 12 per cent against the pound since Britain’s vote to leave the EU on June 23, from 9.86 yuan per pound to 8.65.
“There are good reasons to expect the pound to fall further,” said Julian Jessop, an analyst for Capital Economics.
Besides ongoing economic and political uncertainty, the backdrop of the UK’s huge current account deficit would justify a bigger decline in sterling. Besides, the value of sterling against the greenback has continued to track the difference between the interest rates expected in the UK and in the US.
Among other currencies, the Japanese yen surged as jittery investors sought assets considered safe. The US dollar bought 100.54 yen at 5.35pm, with the Japanese currency stronger by 1.18 per cent from the previous close.