China weakened Chinese yuan fixing by the most since August 2015 as global market volatility driven by Britain’s vote to leave the European Union pushed the dollar up. The People’s Bank of China set the reference rate 0.9% weaker at 6.6375 a dollar. A measure of the greenback’s strength jumped 2.4% in the past two days, the biggest move since 2011, as the British pound and the euro slumped.
The big move in the daily yuan fixing shows turmoil in currency markets following the Brexit vote succeed. The onshore yuan traded 0.4% weaker compared with last Friday, which was less significant than Monday’s fix because the currency had been able to price again. The Chinese currency is allowed to move up or down by 2% on the daily fixing.
"There will be further volatility to come," Khoon Goh, head of Asia research at Australia & New Zealand Banking Group in Singapore, said before the reference rate was announced. "Today's fixing will be weak, the question is how weak."
Investors had expected that China’s central bank would keep the yuan stable after the Brexit vote, wrote Zhou Hao, senior economist for emerging markets in Asia at Commerzbank AG. “The market should be a little bit disappointed as most of the traders hoped that China’s central bank should offer some sort of ’stability’ amid rising market uncertainties,” Zhou Hao said. “Undoubtedly, today’s yuan fixing rates hint that the market should be prepared for more volatility.”
The yuan’s fixing had become more predictable since February 2016 after the PBOC pledged greater transparency and the currency increasingly tracked movements in the dollar against major peers. As before, the yuan’s movements are smaller compared with others in the region such as the Australian dollar and the yen, which down 0.8% and up 0.7%, respectively.
“The yuan’s mild depreciation will continue,” said Iris Pang, senior economist for Greater China at Natixis SA in Hong Kong, who forecasts that the yuan will decline to 6.8 a dollar by the end of 2016. “The long-term impact from Brexit on China is still unclear and the yuan’s decline is more gradual and mild than other currencies.”