Yuan weakens after signs of stability calm markets

China’s currency weakened again yesterday after hopes among financial traders that its decline was stabilizing helped to calm jittery global markets.
The yuan edged down to 7.0488 to the U.S. dollar, about 0.4% below its level late Tuesday. The currency strengthened slightly to 7.0443 to the dollar in the afternoon but still was below the previous day’s level.
Financial markets tumbled after Beijing allowed the yuan to fall Monday to an 11-year low against the dollar, breaking through the politically sensitive level of seven to the U.S. currency. Washington responded by declaring officially that China improperly manipulates its exchange rate, opening the way for possible sanctions.
On Tuesday, central bank officials told foreign companies “the yuan will not continue to depreciate sharply in the future,” the bank press office said in a statement. It gave no details but said “two-way fluctuation” of the currency “will become the norm in the future.”
Tension over currency adds to a sprawling U.S.-Chinese fight over Beijing’s trade surplus and technology policies that companies and investors worry will chill global growth.
The yuan’s moves over the past week are small compared with fluctuations of the euro and other major currencies. But Washington complains the yuan is too weak, making China’s export prices unfairly low and swelling its trade surplus. That makes any decline politically volatile.
The People’s Bank of China sets the yuan’s exchange rate each morning and allows it to rise or fall 2% during the day. It can intervene and buy or sell currency — order Chinese commercial banks to do so — to guide the exchange rate. Joe Mcdonald, Beijing, AP

Categories China