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China's central bank has turned the yuan to a six-month low against the US dollar on Wednesday, plunging the Chinese currency once the talks began a few minutes later.
The People's Bank of China set the dollar benchmark rate at 6.5569 yuan, down 0.6 percent from the previous day, its biggest drop since January 9, 2017. The correction, which reflects the closing from the day before the movement of currencies overnight, put the yuan at its lowest level since December 25.
The weakest correction followed a fall in its value against the dollar on Tuesday. The yuan does not exchange freely like the dollar or the Japanese yen; Instead, China's central bank allows the currency pair to trade each day 2% above and below its benchmark rate.
The yuan fell sharply again in this band once trading began Wednesday, losing up to 0.9% in mainland China, with a dollar of 6.6159 yuan. This put the Chinese currency at its lowest level since December 19 on an intraday basis, according to Wind Info. In a recent move, the yuan reduced its loss, with a dollar to 6.5973 yuan.
In the offshore market, where negotiations are taking place 24 hours a day, the yuan has plummeted after the Chinese central bank released the fix. There, a dollar recently bought 6.5978 yuan, after falling until 0.5% earlier.
While many currencies have fallen against the dollar in the last two months, the fall of the yuan has accelerated since trade threats between China and the United States intensified in mid-June.
China's central bank on Sunday added to the yuan's fading announcement of measures to release more than $ 100 billion for banks to increase their lending. At the same time, the Federal Reserve seems committed to further tightening its monetary policy thanks to a strong economy, divergence that should weigh on the yuan.
However, Chinese policymakers do not want to let the yuan weaken in case it triggers another round of capital outflows, which took place after the devaluation of the yuan in 2015.
"It's a delicate balance [for Chinese policy makers]… because of the growing risk of internal slowdown in economic growth and trade tensions on the external front ", said
Aidan Yao,
Senior Economist Emerging in Asia at AXA Investment Managers in Hong Kong.
The yuan lost 1.5% against the dollar this year, although its decline is lower than the 2.9% decline in the euro and the 4.6% decline in the Korean won over the course of the year. same period.
Yao said that if policymakers began to worry about the extent of the depreciation of the yuan through monetary easing, they could rely on other tools to spur growth. , including infrastructure spending.
Write to Saumya Vaishampayan at [email protected]
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