UK, US political uncertainties weigh on currencies
Chinese yuan was mixed in trading on Wednesday morning but remained on an upward trend and stood at its strongest against the US dollar since last November, while Euro and sterling softened as uncertainties around the upcoming British election loomed over the market.
The People’s Bank of China (PBOC) raised the yuan’s daily fixing rate to 6.7858 per US dollar, stronger by 0.1 per cent or 76 basis points from the previous day’s rate. The fixing is the strongest since November 8 last year.
Onshore yuan, which is mainly traded in Shanghai, was 6.7944 per dollar in early trading on Thursday, down a modest 0.01 per cent from Tuesday.
Offshore yuan, traded in Hong Kong, was at 6.7693 per dollar, a 0.2 per cent rise.
“Renminbi will continue to be stronger as the market is expecting appreciation. The Chinese government and state-owned enterprises will continue backing the yuan, while a declining US dollar will benefit the yuan’s uptrend,” said Jasper Lo Cho-yan, chief strategist at King International.
“It’s difficult for the US dollar to gain again soon given the mixed political and economic factors,” he said.
Lo attributed the congressional testimony to be given by former FBI director James Comey on Thursday as a major push back to the US dollar. Comey is widely expected to reveal negative comments or evidence against US President Donald Trump, who abruptly dismissed the US intelligence head last month.
“Considering the disappointing labour market report in the US last week, the market has shrugged off the possibility of a stronger US dollar even if the Fed is about to raise interest rates next week,” Lo said.
Euro and sterling both traded 0.1 per cent lower on Wednesday morning ahead of the UK general election on Thursday.
Euro trade at US$1.1267 while sterling traded at US$1.29.
“The current polls are not favourable towards the governing party of Theresa May. If the conservative party loses the election, the pound could plummet to as low as the time of Brexit,” he said.
Lo warned investors to avoid the pound versus US dollar given that both influential political events are happening in the countries respectively on Thursday. However, he said these political uncertainties have created a good investment opportunity in Japanese yen.
The Hong Kong dollar was still trading at the lower end of the peg at 7.7938 per US dollar on Wednesday morning.
Gold prices hit their highest level in seven months, standing at US$1297.5 per ounce, a 1.2 per cent increase.