China further devalued its currency Wednesday as the world’s second largest economy aggressively pushed back against slowing growth and trade, roiling global financial markets and driving expectations the currency could be set for more falls and even open a new currency war.
The People’s Bank of China, or PBOC, its central bank, said the daily reference or fixing rate for the yuan against the dollar dropped 1.6% Wednesday after it was cut by 1.9% on Tuesday.
The yuan fell as much as 2% Wednesday against the dollar before paring losses.
Bloomberg, citing people familiar with the matter, reported that swift PBOC intervention to support the falling currency shortly before the market close in Shanghai on Wednesday helped to limit losses.
Tuesday’s yuan devaluation was the largest against dollar in more than two decades.
A devalued yuan makes China’s goods more affordable for foreign buyers and, conversely, foreign goods more expensive for Chinese consumers.
Markets in Asia and Europe fell sharply on the news and Wall Street was on track for a lower start. In China, the Shanghai composite index ended just over 1% lower. In Europe, Germany’s DAX index declined 2.3%. Dow futures were off about 0.8%.
“The challenge for the PBOC is the market interpreted (the devaluations) as a signal that (Chinese) policymakers have embarked on a path of competitive devaluation with more moves to follow,” wrote analysts at Capital Economics, in a research note. “But talk of a concerted policy effort to devalue the currency seems overplayed,” they added.
Capital Economics expected Chinese policymakers to “act behind the scenes in the coming days, likely via (currency sales) to help stabilize expectations for the currency.”
They said China is not declaring a currency war, which is when countries compete against each other to get a low exchange rate for their respective currencies to boost exports and competitiveness.
Read or Share this story: http://usat.ly/1NpYJJJ
No comments:
Post a Comment