The currency fared worse in global trade, touching 6.59. The yuan is linked to the greenback’s worth, which has jumped prior to now yr.
The yuan, also known as the renminbi, is allowed to fluctuate in a band 2% above or below a rate set by the People’s Bank of China based on its currency basket.
Data released on Tuesday showed U.S. nonfarm productivity rebounded in the second quarter, but a weak underlying trend suggested inflation could pick up more quickly than economists thought. Rather, they perceived an attempt by China to catch up to an economic reality that dictates a cheaper yuan.
That hurt other Asian currencies with the South Korean won falling to a near four-year low.
Fed officials say the dollar’s year-long rise, alongside tumbling oil prices and weaker economies overseas, has put downward pressure on stubbornly low domestic prices and has played at least some role in delaying rates “liftoff”.
“Judging from past two days… the one-time devaluation engineered by the central bank could be between 4 to 5 per cent before the currency returns to fresh stability”, he said.
But the PBoC dismissed expectations of continued falls, saying the movements in the yuan exchange rate were normal.
“Currency wars”, a phrase used by Brazil’s former finance minister Guido Mantega in 2010 to describe how competing countries explicitly or implicitly weaken their exchange rates to boost exports, have intensified in recent years. China’s exports fell by an unexpectedly large 8.3 percent in July.
China’s Ministry of Commerce acknowledged on Wednesday that the depreciation would have a stimulative effect on exports. Despite considerable friction on several fronts, administration officials worked hard to clinch deals with the world’s second-biggest economy on limiting carbon dioxide emissions and opening a path for tariffs on high-tech goods to be eliminated through the World Trade Organization.
China has expressed interest in having the yuan included in the IMF’s Special Drawing Rights basket, which the organization uses to value reserve assets.
China’s low rates of vehicle ownership and a growing middle class meant the prospects for mid-to long-term growth remained unchanged, the manufacturer said.
Devaluation condemned by U.S.
Not all countries consider the devaluation a threat, however. However, Apple sells iPhones in China too, and the currency move makes iPhones more expensive to ordinary Chinese consumers. The slowdown in China was already a worry.
Falling commodity prices have been blamed for producer price deflation, putting China at risk of repeating the deflationary cycle that blighted Japan for decades.
Trading screens turned red with nearly all stocks in the FTSE 100 Index lower as it slumped by 101.3 points to 6563.2, a drop of more than 1.5%.
“To a certain extent, the stocks that have propped up the market this year have slowly fallen out of favor, so I think that you’re seeing a little bit of a flight to safety”.
China’s yuan devaluation comes weeks ahead of the first state visit to the United States by Chinese President Xi Jinping amid other tensions over trade, cybersecurity and worldwide development.
The STOXX Europe 600 autos sector fell 2.4 per cent while the index housing the region’s top luxury goods makers also slid 2.5 per cent lower.