Euro edges higher, yuan gains as trade concerns linger

Eileen GuzmanJul 06, 2018

On Wednesday, the central bank lowered the yuan's daily reference rate by 0.15 per cent to 6.6595 per dollar.

The central bank officials' comments, analysts said, helped quell concerns and stabilize market sentiment as both onshore and offshore traded yuan strengthened after their remarks were reported.

On economic news, Hong Kong's value of total retail sales in May, provisionally estimated at HK$40.5 billion, rose 12.9% over the same month in 2017, according to the Census and Statistics Department. ING added it did not see any panic in the market.

Shanghai shed 0.2 percent and Singapore lost 0.5 percent, while Tokyo ended the morning marginally lower after fluctuating through the morning. Euro zone business survey data is due at 0800 GMT.

In share trading Hong Kong sank more than three percent at one point as traders returned from a long weekend break to play catch up with the rest of Asia's retreat on Monday.

Chinese financial markets have been jittery ahead of a July 6 deadline, when the set to slap tariffs on $34 billion worth of Chinese goods that Beijing has vowed to match with tariffs on USA products. "A weaker currency would, at most, be a shield, safeguarding wider damage from a trade war and the hurdles faced by Chinese companies' operating in the US", it said.

Chinese stocks have also been volatile. The index closed lower by 0.27 percent at 6,177.80, with consumer stocks and gold producers recording the steepest declines.

The central bank earlier set the midpoint at 6.6497 yuan per dollar, its weakest fixing in about 10 months. Despite reassurances from the PBoC governor not to use the yuan as a weapon in any trade dispute, indeed the markets remain very bearish China, and well over and above trade tensions, as waning growth momentum has contributed to diverging economic indicators versus the United States suggesting Tuesday's interventions could be little more than a short-term reprieve.

"Expectations that China will impose more property controls are weighing on developer shares as the market is still overheated", said Jiang Yining, an analyst in Shanghai with Capital Securities.

Friday's monthly payrolls data should show labor markets remain tight, keeping the U.S. Federal Reserve's policy tightening on track.

Traders and economists say major state-owned banks sometimes act on behalf of the central bank in the foreign exchange interbank market.

Elsewhere, the Mexican peso firmed sharply on Tuesday after the newly elected president, Andres Manuel Lopez Obrador, sought to assuage investors, magnifying a global bounce in emerging market assets.

World stocks rose on Tuesday, supported by broad gains in Europe and rising oil prices, even though markets across Asia remained in the grip of trade turbulence.

"We think the latest developments go in line with our view that Lopez Obrador will be more pragmatic than some domestic market participants expect", said Tania Escobedo, New York-based Latam FX Strategist at RBC Capital Markets.

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