Yuan, euro, pound all softer as US dollar strengthens on tax reform
Chinese yuan weakened on Thursday along with the euro and sterling as the US dollar strengthened on tax reforms proposed by US President Donald Trump.
Onshore yuan, which is mainly traded in Shanghai, was at 6.8970 per dollar in early trading on Thursday, down 0.08 per cent from Wednesday when it weakened 0.14 per cent.
Offshore yuan, traded in Hong Kong, was down 0.09 per cent on Thursday morning to 6.9018 after it had fallen 0.11 per cent on Wednesday.
The weaker yuan came as the People’s Bank of China set the yuan reference rate at 6.8896 per US dollar, weaker by 0.07 per cent or 51 basis points from Wednesday’s fix.
“While US tax reform details remain elusive, the bottom line should be dollar positive. We’ve seen a move higher for the dollar on regional currencies as dollar demand is starting to perk up,” said Stephen Innes, senior trader at Oanda.
“Investor confidence in China will be fraught with uncertainty through 2017 as US interest rates are expected to rise and mainland officials deal with the perils of deleveraging the China money ball. Restoring financial stability will be high on the politburo’s agenda,” he said.
Jasper Lo Cho-yan, chief strategist at King International Financial, said the yuan softened along with the euro and sterling after the latter two currencies hit their strongest levels in recent months as Europe’s political situation stabilised.
Euro traded at US$1.0912 per US dollar after hitting a five and a half month high on Wednesday at US$1.0950. The euro has been trading strongly since Monday after the first round of the French presidential election showed Emmanuel Macron, who supports France remaining in the EU, as the likely winner in the May 7 run-off.
Sterling softened to US$1.2866 per pound after hitting a six month high last week after Britain announced a general election date in June.
“The yuan, euro and sterling all softened a bit on Thursday as the US dollar has strengthened. This trend is likely to continue as Trump’s policy would mean more interest rate rises and economic boost which would support the US dollar. In addition, Italy is going to have presidential election soon which will also add uncertainties to the market,” Lo said.
The Hong Kong dollar fell to a 14-month low against the US dollar to trade at 7.7818 per US dollar. Lo said the strong US dollar and the low Hong Kong interbank interest rate has led the Hong Kong dollar down.
“If the trend continues Hong Kong lenders may need to increase their interest rate soon to prevent capital outflow. If this happens, it would hurt the stock and property markets,” Lo said.