China puts yuan skeptics on hold as currencies near the lows of its decade

"For the forces trying to reduce the renminbi, we fought hand-to-hand a few years ago and we know each other very well," said Pan Gongsheng, deputy governor of the People's Bank of China, during a meeting. 39, a briefing on Friday. "I think that's still fresh in our memories."

After a sale of nearly 7% this year, the yuan is poised to reach 7 for a dollar – a tightly guarded threshold that could trigger new sales if Chinese businesses and individuals decide that it means that They must expel their capital before any further decline. The yuan traded for the last time lower than $ 7 per dollar in May 2008 in the onshore market, while offshore trading was introduced only in 2010.

The comments by Pan, who is also head of the country's foreign exchange regulator, are the latest sign of Beijing's growing concern over its currency, more than three years after a previous depreciation that has caused considerable damage on the world market.

China has made it more expensive this year for traders to place bets against the currency and modified the mechanism to fix its official daily trading range – efforts to contain the fall of the yuan.

In the tightly controlled onshore market, the Chinese currency fell to $ 6.9647 on Friday, 0.03% lower than its lowest level in 10 years. After a press conference, Pan also said the central bank would not engage in a competitive depreciation and would continue to take steps to stabilize expectations for the yuan.

"Level seven is important to them," said Eric Liu, fixed income portfolio manager at Manulife Asset Management, indicating the timing of Mr. Pan's remarks on the same day that the Currency was approaching its lowest level since 2008. Mr. Liu Do not expect the yuan to exceed this level this year.

The US dollar is appreciated in 2018 against many currencies, including the yuan. The WSJ Dollar Index, which measures the currency against a basket of peers, has risen for five of the last seven trading days, closing Thursday at its highest level since May 2017.

Nevertheless, China is facing other problems that have fueled the fall of its currency: mainly, trade tensions with Washington and slowing growth. As a result, the yuan's depreciation against the dollar has overshadowed many of its peers, which has reduced its value against a basket of currencies of its trading partners.

The weakness of the currency came from this week's stock market volatility, which started in China and quickly became globalized. The Shanghai Composite jumped 4.1% Monday and fell 2.3% Tuesday, before switching over the weekend. The main US indices have evolved tremendously Wednesday and Thursday.

The decline of the yuan against the dollar is symptomatic of the divergence of the economy and the monetary policy of each country. China said last week that gross domestic product grew by 6.5 percent in the third quarter, the slowest since 2009, sparking a coordinated effort to appease investors. In the United States, GDP growth reached its highest level in almost four years in the second quarter.

The United States has raised its interest rates three times this year and has a fourth. China eased its policy by helping to keep bond yields down and announced various stimulus measures, although these failed for some investors.

"They are making good noises with regard to the stimulus packages they are developing, but that seems rather disappointing at the moment in terms of the scale of support that is being provided," said Aninda Mitra, a sovereign sovereign analyst in Singapore at BNY Mellon Investment Management.

A weakened yuan will probably help Chinese exporters setting their prices in dollars but pay most of the costs in their currency. However, the decline could aggravate tensions between the United States and China. Both countries have set multi-billion dollar tariffs on their respective products. President Donald Trump has repeatedly stated that China artificially restrains its currency.

In addition to adjusting its monetary regime and issuing verbal warnings, there are signs that Beijing has acted to slow the decline of the yuan more directly. The Chinese central bank sold $ 17.4 billion in foreign exchange last month, which according to RBC Capital Markets is its largest intervention since the beginning of 2017.

-Grace Zhu contributed to this article.

Write to Saumya Vaishampayan at [email protected] and Ben Eisen at [email protected]