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FOREX-Yuan touches six-month low, sterling steadies

Published 30/06/2016, 10:29 pm
© Reuters. FOREX-Yuan touches six-month low, sterling steadies
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* Chinese sources say PBOC would tolerate fall to 6.80/dollar

* Offshore yuan hits 6-month low, Aussie dips

* Sterling "in zombieland" after Brexit, flat on the day

* Dollar slips more than 7 pct in June vs perceived safe-haven yen

By Patrick Graham

LONDON, June 30 (Reuters) - China's yuan hit its weakest level in six months against the dollar in offshore markets on Thursday, hurt by signs from policy sources that Beijing may be willing to see it fall to 6.80 per dollar.

Government economists and advisers involved in regular policy discussions told Reuters the People's Bank of China was willing to let the currency depreciate by as much as last year's record decline of around 5 percent. CNH=

That knocked offshore rates for the yuan to as high as 6.70 as London traders came on line, and pushed the Australian dollar almost 1 percent lower on the day.

Both recovered, helped by a statement from the PBOC attacking media for publishing "inaccurate information" on the yuan, but were still the biggest movers on major currency markets struggling for direction after last week's UK referendum result - expected to be another shock to global growth.

"There was certainly a flurry around that story, it grabbed a lot of attention," HSBC strategist Dominic Bunning.

"Otherwise we are in limbo land. It will be at least a month before we get any clarity if the economic fallout of the Brexit vote is as bad as markets fear."

Sterling GBP= EURGBP= showed little reaction to a poor batch of current account data for the first quarter or the withdrawal of former London Mayor and "Leave" campaigner Boris Johnson from the race to become Britain's next prime minister.

The pound was steady on the day against the dollar by midday in London and more generally is around 3 cents above lows hit on Monday after its biggest two-day fall in the modern era of free-floating exchange rates.

The tightly-controlled official onshore rate for the yuan, one of global investors central concerns this year, is already trading at its lowest in more than five years and is in the midst of its biggest quarterly fall ever.

The Chinese policy sources said any depreciation would be gradual for fear of triggering the sort of capital outflows that shook the economy in January, and would aim to avoid criticism from trading partners including the United States.

By 1200 GMT, the yuan was trading down 0.2 percent on the day at 6.6654 per dollar CNH= . The Australian dollar was down a third of a percent at $0.7435 AUD= .

The dollar remained near a 3-1/2-month high against a basket of currencies hit in the wake of last Thursday's British vote .DXY .

While the U.S. currency mostly benefited from the massive wave of risk aversion that crashed over global markets after the Brexit vote, fading expectations of a rise in U.S. interest rates this year have stolen some of its thunder.

Interest rate futures suggested traders saw the Fed holding policy steady through at least early 2018.

"The odds may be against them but investors are hoping that the worst is over for currencies and equities and the gaps on Friday will be filled," Kathy Lien, managing director of foreign exchange strategy at BK Asset Management, wrote in a note to clients.

"But considering there's been had no additional clarity on the terms of Brexit or the outlook for the UK economy and global economy since Britain's decision to leave the European Union on Friday, we don't see fundamental support for the recent moves," she said.

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