The dollar had earlier gained on the statements from the People’s Bank of China (PBOC) and the slowing of the yuan’s decline.
That reference rate was adjusted on Tuesday, Wednesday and again on Thursday. The median forecast from seven strategists in Bloomberg surveys over the past two days was for the yuan to trade at 6.35 per dollar by year-end, implying a 0.8 percent gain from Thursday’s close. That meant the yuan rose with the dollar over the past year, hurting Chinese exporters and raising the threat of politically risky job losses.
In the grand scheme of things, this is not a large currency move. He oversees coverage of financial services and regulation. The pound fell by about 30pc against the dollar in late 2008 and early 2009. The dollar was last up 0.13 percent against the yen at 124.370 yen.
“Given the sufficient forex reserves with the RBI and the new reality of the Chinese devaluing their currency, the threshold of the rupee should now be in the range of Rs.64-66”.
Thailand, Malaysia Hong Kong and Taiwan could be among the most vulnerable countries because they are both highly reliant on China’s demand for their exports and services while also competing with China in other export markets, Credit Suisse analysts Santitarn Sathirathai and Michael Wan said in a report.
“In the long run”, Ms. Zhang said, “the renminbi remains a strong currency”.
So far, the currency has lost around four percent since the initial change in the market midpoint. “That’s the indicator that the currency is subject to two-way risk”.
The yuan’s decline was small compared with fluctuations of freely traded currencies.
PBoC economist Massachusetts Jun on Wednesday said China could stabilize the yuan through direct market intervention. By historic standards, a currency movement of 3pc or so is very modest.
“For those who feel like China’s exchange rate is an issue, they might not like the result if China suddenly started allowing those market influences to be felt before they had fully reformed the economy behind it”, he said.
“China’s statements maybe took some of the market’s focus off of China and moved it back to the September rate meeting”, said Chris Gaffney, president of EverBank World Markets in St. Louis.
Foreign exchange values generally move to reflect market conditions. Sentiment was soothed further by comments from the central bank.
So what will happen next, and how will the UK and other European economies be affected? It’s the strongest signal yet that the country’s devaluation push is far from a one-off.
The Philippines will soon digest the impact of the yuan devaluation on the economy and its neighbors.
The main fear is that China’s largely state-controlled financial system isn’t robust enough to withstand big shocks driven by external forces. Even if the Chinese government liberalizes the foreign exchange market and gives up capital flow control, which direction the yuan would ultimately go is hard to say.