China’s yuan extends gains to a third straight session, pacing uptick in the pound and euro

PUBLISHED : Wednesday, 13 July, 2016, 4:27pm
UPDATED : Wednesday, 13 July, 2016, 4:47pm

The Chinese yuan rose for a third straight day while the pound and euro also extended their recent gains on Wednesday amid improving market sentiment.

The onshore yuan in Shanghai traded at 6.6839 per US dollar at 10.45 am, edging higher by 0.03 per cent from Tuesday’s close. The offshore yuan in Hong Kong rose by 0.11 per cent to 6.6881 at 10.45am. This marked the third consecutive session of gains for both onshore and offshore yuan trading. Last week, the onshore yuan touched a six-year low as sterling fell to its weakest level against the dollar in 31 years.

The People’s Bank of China on Wednesday set the yuan reference point against the US dollar at 6,6891, 0.09 per cent, or 59 basis points stronger than on Tuesday. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

“Trading of the yuan has been relatively subdued, despite broader currency moves in both sterling pound and Japanese yen, which is leaving the PBOC as the unassuming winner, enjoying relative calm amid frenzied global currency markets,” said Stephen Innes, senior trader at OANDA Asia Pacific.

“During the wave of risk-on sentiment hitting markets, some long USDCNH position unwinding occurred, but the follow through was limited as bids quickly reappeared.”

Sterling rose for a fourth straight trading day on Wednesday, with each British pound buying US$1.3274 at 10.45am, up 0.68 per cent from Tuesday, when the currency tacked on 1.92 per cent. The rebound coincided with the transfer of top political leadership in the UK, as Prime Minister David Cameron announced at the start of the week that he would make way for Theresa May to take over as prime minister on Wednesday.

The euro also rose for a third day in a row, with the single currency buying US$1.1060 at 10.45am, up 0.03 per cent.

Meanwhile, Japan’s yen was up 0.53 per cent against the greenback, with the dollar buying 104.14 yen at 10.45am. The Japanese currency fell 1.85 per cent on Tuesday and 2.25 per cent on Monday. The yen had acted as a safe haven amid volatile markets following the Brexit decision on June 23 to leave the European Union.

Innes said the outlook for the yen would depend on whether the Japanese government announced sufficient measures to boost the economy.

“The hopes and expectations of investors are banking on expectations that Japan’s policy makers are cuing up an unprecedented, massive, stimulus package probably in the form of both fiscal and monetary policies,” Innes said.

“Yet we have seen this exuberance before, only to be disappointed by Central Bankers’ over-promises and under-delivers. As rumours have it, a 20 trillion yen package of fiscal stimuli as well as policy easing at month-end is in the works, but if it falls short of expectations, we could be in for a massive reversal,” Innes said.