Devaluation Streak Possibly Over for Yuan (CNY) but Passing of Bailout Deal by Greek Parliament Keeps the EUR/CNY Exchange Rate Up
Last night saw the People’s Bank of China (PBoC) finally halt the three day run of depreciations, instead raising the value of the Yuan (CNY) by 0.05% against the US Dollar (USD). A reassurance that stability might soon return to the currency, this prompted a slight dip in the EUR/CNY exchange rate. However, with the Greek parliament successfully voting to approve the country’s third bailout package overnight the Euro (EUR) has remained strong to keep the pairing trending in the range of 7.1331.
Market unrest from three consecutive days of Yuan (CNY) devaluation has benefited the common currency (EUR) this week.
Slowing Chinese Economy and Greek Bailout Deal This Week Encouraged Upsurge in EUR/CNY Exchange Rate
Times have not been good for the Yuan (CNY) this past week, with the weekend’s Chinese Exports, Imports and PPI all demonstrating worse than forecast decreases. The Exports figure in particular showed a severe shortfall, clocking in at -8.3% rather than -1%. Naturally concerns for the world’s second most influential economy only heightened with these revelations and the confirmation of a distinct contraction in growth.
Apparently in response to this, on Tuesday the People’s Bank of China (PBoC) announced that it would be enacting a ‘one-off’ devaluation of the Yuan, which reduced the currency’s value by nearly 2% against the US Dollar (USD). As this triggered a slide across the board, the EUR/CNY exchange rate experienced a swift jump to 6.9202 before continuing to gain majorly throughout the rest of the day.
Meanwhile, an ‘in principle’ agreement of a third bailout deal for Greece on the same day bolstered the single currency (EUR). With a default now less likely on the 20th August European Central Bank (ECB) repayment the EUR/CNY exchange rate rose further to a fresh daily peak of 7.0090.
Continued Yuan (CNY) Devaluation Spurs EUR/CNY Exchange Rate to Greater Monthly High, Eurozone Unease Causes Euro (EUR) to Begin Slipping
Following a second depreciation on Wednesday the PBoC last night made a further cut of 1.1% to the value of the Yuan in spite of previous assurances to the contrary. Fears of a potential currency war being triggered by this streak of repeated devaluations have been raised with many investors concerned that the Australasian basket could easily be prompted into following suit in order to remain competitive. Considered an attempt to kick-start a return to positive growth for the Chinese economy and bolster exports, this move could ultimately benefit the Renminbi in the long term, however, for the time being it is causing nothing but weakness. This morning the EUR/CNY pairing jumped still higher to strike a new monthly high of 7.1829.
Undoubtedly strengthened by its relatively unexposed position in competition to the Yuan, the Euro today has nevertheless faced a slight faltering. Rumbles of apprehension are beginning to surround the passage of the proposed third Greek bailout, as German ministers and Chancellor Angela Merkel appear significantly dubious over the current deal as it stands. With Friday’s vote by Eurozone finance ministers crucial to getting the agreement passed in time for the 20th August European Central Bank (ECB) deadline, a certain degree of cautiousness has entered trading. In consequence the EUR/CNY exchange rate has ceded some of its gains to enter a downtrend.
Euro to Chinese Yuan (EUR/CNY) Exchange Rate Forecast: More Volatility Likely as Events Continue to Unfold in China and the Eurozone
Looking ahead into next week, China will be releasing its House Price Index for July. While any further actions from the PBoC are sure to eclipse this data, a disappointing result is likely to only compound the current problems of the Yuan.
Eurozone GDP and Inflation Rate data could stand to shore up the common currency on Friday, although once again developments in the Greek crisis saga will likely overshadow these reports to at least some degree. However, should the ratification process ultimately prove smooth enough the Euro could be experiencing a boost against all rivals in the coming days.
Current EUR, CNY Exchange Rates
At time of writing the Euro to Chinese Yuan (EUR/CNY) pairing was in the range of 7.1126, while the Chinese Yuan to Euro (CNY/EUR) exchange rate is experiencing a minor resurgence at 0.1406.