Chinese yuan bounces back after Fed decision on US rates, but pound struggles on Brexit fears

China’s central bank sets reference price higher after the previous day’s five-year low, while yen and gold benefit from desire for safe havens

PUBLISHED : Thursday, 16 June, 2016, 12:34pm
UPDATED : Monday, 27 June, 2016, 11:51am

China’s yuan currency bounced back on Thursday morning after the central bank set the reference price stronger against the US dollar following the US Federal Reserve’s decision to keep interest rates unchanged.

But the British pound continued to fall and the Japanese yen and gold gained as many investors looked for safe havens amid concerns about the referendum in Britain next week over its continued membership of the European Union.

Onshore yuan traded at 6.5840 to the US dollar at 10.35 am on Thursday, a recovery from a five-year low on Wednesday morning of 6.6043.

The People’s Bank of China set the reference point at 6.5739 on Thursday, stronger by 0.39 per cent or 262 basis points from Wednesday’s 6.6001, which had been the weakest in five years.

China’s yuan is not yet fully convertible, but the PBOC sets a midprice for the yuan against US dollar each day. Traders are allowed to trade within two per cent either side of the reference point during the day.

Tommy Ong, managing director of treasury and markets at DBS Hong Kong, said the guidance price on Wednesday was so low that it surprised the market and led to heavy selling.

“It was oversold on Wednesday. The US has decided not to change the interest rate and the PBOC has set the price higher. This has helped the yuan bounce back a bit,” Ong said.

“However, the yuan is likely to remain weak in the near future because of the uncertainties over the British vote on whether to stay or to leave the EU next week. The strong yen recently also added pressure to the yuan,” he said.

Offshore yuan traded at 6.5948 at 10.40am, weaker by 0.02 per cent from Wednesday.

The pound continued to fall on Thursday morning, touching 1.4190 to the US dollar, weaker by 0.11 per cent from Wednesday and the lowest in two months. It has dropped 0.49 per cent in the first four trading days this week, after a sharp fall of 1.81 per cent last week.

Yen and gold benefitted in their role as safe havens. The yen traded at 104.54 against the US dollar on Thursday morning, its strongest level since September 2014.

Gold rose for the sixth straight day to US$1,291.11 per ounce, up 0.44 per cent.

The Hong Kong dollar traded at the strong end of its pegged range to the US dollar, at 7.7598 at 10.40am.