China’s yuan marginally lower, ending two days of gains

Chinese currency weakens slightly, reversing stronger daily fixing by the PBOC

PUBLISHED : Thursday, 14 July, 2016, 12:27pm
UPDATED : Thursday, 14 July, 2016, 12:27pm

The Chinese yuan fell slightly on Thursday morning after a two-day rally, while the British pound continued to strengthen even as the Bank of England is expected to unveil a quarter-point interest rate cut later in the European trading day.

The onshore yuan in Shanghai stood at 6.6876 against the US dollar at 10.30am, shedding 0.07 per cent, or 44 basis points from a day earlier.

The offshore yuan in Hong Kong weakened 0.06 per cent or 39 pips to 6.6938 per dollar.

The People’s Bank of China on Thursday set the yuan reference rate against the US dollar at 6.6846, stronger by 0.07 per cent or 45 basis points higher from Wednesday’s fix. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

The yuan’s fall came after the release of China trade data for June, which pointed to further tepid growth in global demand and steady growth in imports.

China is due to release GDP growth figures for the second quarter on Friday.

Meanwhile, sterling was up 0.3 per cent or 39 pips to US$1.3186 on Thursday morning, extending its winning streak to four days and shrugging off the chance of an interest rate cut when the Monetary Policy Committee announces its monthly policy rate decision Thursday.

Clarity on the UK’s leadership has been a factor boosting investors’ appetite for the British currency this week, analysts said. Theresa May became British Prime Minister on Wednesday, a power transition that was signalled by former UK Prime Minister David Cameron on Monday.

“For the pound the rise has been a burden and a blessing, as traders seek safety they have been so far turned up when it comes to the pound in the wake of the fundamental changes at hand. So far the pound has pushed up to resistance at US$1.3304. The push back lower here will have some traders and bears looking to take another swipe as the lead up the Brexit looks all the more on the cards in the long run with Theresa May in charge,” Hussein Sayed, chief market strategist of FXTM wrote in a note.

“Any push lower from here is likely to find support at US$1.2795 and will be very interesting to see if the market takes a breather here, or keeps on trucking,” Sayed wrote.

Jonathan Loynes, an analyst at Capital Economics, said: “We expect a 0.25 per cent cut in the bank rate at today’s meeting, though we would not rule out a bigger move. The fragility of market sentiment and the high degree of uncertainty over the economic outlook means that the risks attached to disappointing market expectations would seem to far outweigh those of providing too much policy support too soon.”

Meanwhile, the Japanese yen continued its weakening streak, with the US dollar buying 104.54 yen as of 10.30am, down 0.06 per cent from its level at the close of regular US trade. The yen has weakened almost 4 per cent so far this week, as the victory of Shinzo Abe’s party in the upper house election propelled expectation of more easing policies.

Sayed said coordinated action from Japan’s fiscal and monetary side is required to put an end to the yen’s strengthen in the short run. He believes fresh stimulus will be announced in the weeks ahead, but said that questions remains as to the size of the fiscal package.