BEIJING (AP) — China’s yuan weakened again Wednesday after hopes among financial traders that the decline was stabilizing helped to calm jittery global markets.
The currency edged down to 7.0488 to the U.S. dollar, about 0.4 percent below its level late Tuesday.
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 to possible sanctions.
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.
The bank lowered the opening level for trading again Tuesday, but traders were encouraged when it was slightly higher than they expected. That, plus a central bank statement late Monday promising to keep the currency stable, helped to fuel hopes the declines had stopped.
On Wednesday, the central bank lowered the starting point for trading again, setting it at 6.9996 to the dollar, almost 0.5 percent below Tuesday’s starting level. That would allow the yuan to slide to below 7.1 to the dollar while staying within the trading band.
Beijing has assured foreign companies the yuan won’t keep falling, “but they haven’t seen that today,” said Chris Weston of Pepperstone in a report. “This is again proving central to moves across markets in Asia.”
Stock market benchmarks in Tokyo and Hong Kong fell 0.8%. Seoul was off 0.2%.
The Chinese central bank showed it can “steer global markets” and “quickly weaken” the yuan if needed to offset U.S. tariff hikes, said Stephen Innes of Oanda in a report.
“This is about China proving a point,” said Innes. “They have a brawny tool at their disposal.”
President Donald Trump’s punitive tariffs on Chinese imports have added to downward pressure on the yuan by prompting concern about a slowdown in the world’s second-biggest economy.
Last week, Trump stepped up their fight by threatening to hike tariffs on an additional $300 billion of Chinese goods, effective Sept. 1.
That came after the latest round of talks aimed at ending the tariff war concluded in Shanghai with no sign of a deal. Negotiators are due to meet again in September in Washington.
Economists say if the Sept. 1 tariff hike goes ahead, the dent in Chinese exports and economic growth could weaken the yuan to as low as 7.2 to the dollar. (AP)