A halt to the Chinese devaluation of the Yuan (CNY) has somewhat stabilised the GBP/CNY exchange rate today as UK Construction Output fails to spur a Sterling (GBP) rally.
Yuan (CNY) Depreciation Boosted GBP/CNY Exchange Rate to Eleven-Month Best in spite of Limited UK Data and Dovish Pound (GBP)
The People’s Bank of China (PBoC) surprised the world earlier in the week with three consecutive depreciations to the Yuan (CNY). Cumulatively the single largest drop in value the Renminbi has seen in two decades, this move quickly sparked fears of a potential currency war as commodity currencies and the Australasian basket all began to slump across the board in response. Consequently the GBP/CNY exchange rate repeatedly rose, striking a fresh eleven-month high of 10.0649 yesterday.
Meanwhile, Wednesday’s employment data for the UK dashed hopes for a potential mid-week rally. The Employment Change figure disappointed expectations by demonstrating a more severe decline than had been forecast, -63,000 rather than -55,000. Offering little encouragement to pundits, this left the GBP/CNY pairing unable to effectively capitalise on the softened Yuan and forced to cede some of its gains over the next two days.
Overnight Increase in Value for the Yuan (CNY) Stabilised GBP/CNY Exchange Rate Today, UK Construction Output has Minimal Impact
Last night the PBoC finally changed tact and raised the value of the Yuan by 0.05%, presumably in a bid to reassure the increasingly worried markets that the aim is a stable currency rather than a war of depreciation. Certainly the GBP/CNY exchange rate steadied relatively overnight, rather than surging significantly upwards as it had on previous nights.
Construction Output for June was released for the UK today, falling short of forecast but still posting an improvement on the previous month’s growth. The rise was decidedly more modest than hoped, at 2.6% rather than 3.3%, but it nevertheless remains the most positive domestic release of the week for the Pound. Not enough to turn around the dovish sentiment that has plagued the currency throughout the week, this prompted the GBP/CNY pairing to trend upwards before entering another downturn in the afternoon.
Pound Sterling to Chinese Yuan (GBP/CNY) Exchange Rate Forecast: Sterling Looking to Make Gains with Consumer Price Index Data
Tuesday’s UK Consumer Price Index stands to be a significant influence on the pairing, as the strongest potential stimulus for a Sterling rally. As a prime indicator of the current rate of inflation the CPI is one of the key pieces of data that the Monetary Policy Committee (MPC) will consider when debating their next Rate Decision. Thus a strong showing now could signal that a Bank of England (BoE) rate hike might ultimately come sooner rather than later.
China’s House Price Index for July will be the nation’s only economic data release next week, although it will most likely be overshadowed as investors continue to eye the daily PBoC valuations of the Yuan and speculate as to what strategy, if any, is behind the moves.
Current GBP, CNY Exchange Rates
At time of writing the Pound Sterling to Chinese Yuan (GBP/CNY) pairing is fluctuating around the 10.0001 mark, with the Chinese Yuan to Pound Sterling (CNY/GBP) is in the range of 0.0999.