Yuan gains for a second day while pound sees U-turn after Brexit fears ease on UK lawmaker’s death

PUBLISHED : Friday, 17 June, 2016, 2:15pm
UPDATED : Friday, 17 June, 2016, 2:15pm

Chinese yuan continued to strengthen for a second day on Friday as the British pound bounced back after the murder of a UK lawmaker shifted sentiment in the Brexit debate over whether Britain will vote to leave the EU next Thursday.

Onshore yuan traded at 6.5782 per US dollar in early trade on Friday, stronger by 0.18 per cent from the Thursday close before softening to 6.5862 per US dollar at 12.40am. This marked the second day the currency rose after it had hit a five-year low on Wednesday morning of 6.6043.

On a weekly basis, the onshore yuan fell 0.41 per cent against the US dollar, its biggest weekly decline in a month.

The People’s Bank of China set the reference point at 6.5795 per US dollar on Friday, weaker by 0.09 per cent from Thursday. The central bank on Wednesday had set the midprice low at 6.6001, which had been the weakest level in five years.

China’s yuan is not yet fully convertible, but each day the PBOC sets a midprice for the currency against the US dollar. Traders are allowed to trade within 2 per cent either side of the reference point during the day. Offshore yuan traded at 6.5946 per US dollar at 12.40am, stronger by 0.02 per cent from Thursday.

Stephen Innes, senior trader at Oanda Asia Pacific, said the yuan has been relatively stable withBrexit still the primary market focus, adding that there has been an abrupt U-turn in pound trading on the shift in Brexit sentiment.

As we near the Brexit tally, we should see a sizable portion of long Japanese yen positions likely unwind
Stephen Innes, Oanda Asia Pacific

The pound bounced back by 0.29 per cent on Friday to trade at 1.4240 against the US dollar, ending its falling streak over the past two weeks, when it hit a two-month low on Thursday.

The bounce came after anti-Brexit British lawmaker Jo Cox was killed on Thursday, a tragedy that led campaigners on both sides of the debate to suspend their campaigns. Brokers believe her death would shift sentiment towards a ‘remain’ vote in the referendum next Thursday, which in turn would minimise the chance of global financial turmoil.

“The Brexit headlines took a horrible turn overnight with the ‘Leave’ and ‘Remain’ campaigning suspended after a pro-EU British MP was murdered. The tragic event has caused the International Monetary Fund to delay highly anticipated reports that it had prepared on the implications of the Britain leaving the EU,” Innes said.

Gold, which acts as a safe haven amid the Brexit fears, fell 0.97 per cent to trade at 1,278.59 per US dollar at 12.40am on Friday, ending its previous six-day winning streak.

The yen, however, continued its rally and traded at 103.61 against the US dollar on Friday morning, the strongest level since August 2014. But the currency fell back to 104.22 at 12.40am after the Bank of Japan decided to keep monetary policy unchanged on Thursday, Innes said.

“While this move was widely expected, some traders expressed their disappointment, sending the yen soaring [in early trade]. Governor Kuroda stated the central bank is watching currency movements carefully and that excessive FX moves were inappropriate,” Innes said.

“In reality, there was no chance for a Bank of Japan easing yesterday, given the proximity of Brexit. As we near the Brexit tally, we should see a sizable portion of long Japanese yen positions likely unwind.”

The Hong Kong dollar traded at the strong end of its pegged range to the US dollar, at 7.7603 at 12.40am.