The People’s Bank of China slashed its daily reference rate for the yuan by a record 1.9% today, leading to a huge move in USD/CNH prices, as well as a wider wave of currency moves across Forex markets.
The yuan devaluation also prompted a reaction from one of the international leaders in the retail Forex industry – Gain Capital Holdings Inc (NYSE:GCAP). GAIN’s chief executive Glenn Stevens, while speaking at the Jefferies Financial Services Conference, commented on the PBOC decision.
Mr Stevens stressed that the devaluation of the Chinese currency would not have a material adverse effect on GAIN’s financial results.
“Customer trading activity in yuan-related currency pairs constitutes an immaterial part of our overall trading volume. Therefore, we do not expect the recent devaluation of the yuan to have a material adverse effect on our financial results,” stated Mr. Stevens.
“As part of our risk management program, we take a conservative approach to managing our exposure to pegged currencies so that we are well positioned in the event of unexpected central bank policy changes, such as the People’s Bank of China’s (PBC) announcement last night to devalue the yuan and the Swiss National Bank’s policy change earlier this year,” continued Mr. Stevens.
“Specifically, in the case of the yuan, we took steps to significantly limit the maximum notional size of our exposure to yuan-linked currency pairs and other products, which we believed was prudent in light of the yuan peg and the other conditions in the Chinese financial markets,” Mr Stevens added.
“We have seen increased volatility since the PBC’s announcement last night, and customer trading activity has risen commensurately across multiple asset classes. As always, we will continue to actively monitor market conditions and manage market and credit risk accordingly,” concluded Mr. Stevens.
To view the official announcement by GAIN, click here.