Yuan, pound see rally but yen falls after Bank of England keep rates unchanged

Chinese yuan rose on Friday morning after Beijing reported better-than expected GDP growth while the Bank of England’s decision not to reduce interest rates on Thursday drove pound sterling to a two-week high and sent the yen falling to its pre-Brexit referendum level.

The onshore yuan in Shanghai traded at 6.6794 per US dollar early Friday morning, stronger by 0.06 per cent from Thursday’s close, before it softened to 6.6825 at 10.45am. The currency has risen almost 0.1 per cent this week, ending a four-week falling streak that saw it touch six year lows last week.

The offshore yuan in Hong Kong rose by 0.1 per cent to 6.6805 in early trading on Friday before softening to 6.6880 at 10.45am. It has risen more than 0.2 per cent this week, turning around three weeks of declines.

The People’s Bank of China on Friday set the yuan reference point against the US dollar at 6.6805, 0.06 per cent or 41 basis points stronger than on Thursday. Traders are allowed to trade up to 2 per cent either side of the reference point for the day.

Beijing on Friday said the nation’s second quarter and first half GDP growth both stood at 6.7 per cent, the same as the first quarter and slightly better than market expectations of 6.6 per cent.

“There are very few major concerns regarding the yuan depreciation as the current fixing mechanism is more market oriented, providing investors with a much needed level of transparency,” said Stephen Innes, senior trader at Oanda Asia Pacific.

“In addition, policy makers have been more forthcoming with their forward guidance, which in the past has been a closely guarded secret, and investors continue to vote [with their] thumbs up,” he said.

The yuan is moving in line with overseas currencies after the Bank of England surprised the market on Thursday by not reducing interest rates, which saw the pound rally on Thursday by 1.47 per cent against the US dollar. Each pound trade at US$1.3424 as of 10.45am Friday, its highest level in two weeks, and up 0.64 per cent from Thursday. The currency has risen 3.62 per cent this week.

The pound has bounced back from its recent 31-year low of US$1.2801 but still has room to catch up on its pre-Brexit referendum level of US$1.5018. The pound fell sharply by 12 per cent in a single day on June 24 when Britons voted to leave the European Union.

The yen, which was seen as a safe haven after Brexit and rose to 99.11 yen per US dollar, on Friday fell back to its pre-Brexit level of 106.17 yen per US dollar. This week alone, the yen has fallen by 5.6 per cent against the US dollar.

“There are many investors cross trading the pound and yen so a strong pound rally would lead to strong selling pressure on the yen,” said Jasper Lo, chief executive of King International. “The market widely believes the Japanese government will issue aggressive monetary easing policies at the end of this month to boost the economy. This also hurt the yen exchange rate.”

Lo expects currency market sentiments would continue to see the yuan, pound and euro turn more stable, while the yen is likely to fall further.

Each euro traded at US$1.1130 on Friday morning, up 0.11 per cent, having risen for five days in a row and now at a 10-day high.

The Hong Kong dollar is on the strong side of the peg, trading at 7.7538 per US dollar, close to its year high of 7.7503.