As a growing trade war with the US damages investor confidence, Business Times has reported that the China Yuan is poised for worst month with 3.9% plunge. This has been deemed as the biggest loss since January 1994, when the modern exchange rate regime was adopted.
The report stated: “The slump past the 7 level for the first time since the financial crisis comes as China-US trade tensions escalate. Fresh signs of a slowing economy and bets on further monetary easing have also helped fuel the retreat.”
Meanwhile, there are signs the People’s Bank of China (PBOC) is growing uncomfortable with the yuan’s drop. In fact, it has set the daily reference rate at “stronger-than-expected levels for a fifth straight session on Tuesday”. According to the report, such “sustained weakness risks creating a cycle of capital outflows and more currency weakness.”
Following President Donald Trump and the Chinese government exchanging tariff threats on Friday (23 Aug), the yuan plunged to the weakest level since February 2008 this week.
“The PBOC may allow the currency to slide to 7.5 by the end of this year as it uses depreciation to counter the tariffs, Bank of America Merrill Lynch strategists led by Claudio Piron wrote in a note. The currency slipped 0.14 per cent to 7.1621 a dollar as of 11.55am in Shanghai,” it reported.