Yuan weakens after PBOC sets fixing below 6.8 for first time since 2010
Both onshore and offshore yuan trade below psychologically important level of 6.8 per US dollar
The Chinese yuan weakened in Asian afternoon trading on Friday after the central bank set its fixing rate below 6.8 per US dollar for the first time in more than six years.
Both offshore and onshore yuan were trading below 6.8, a level regarded by officials and analysts as psychologically important. The decline, however, narrowed in afternoon trading.
Offshore yuan traded in Hong Kong began to strengthen in the afternoon after plunging in earlier trading, up 0.22 per cent or 150 basis points to 6.8172 per US dollar as of 5.30pm. It had dropped almost 0.3 per cent earlier in the morning to touch a one-year low of 6.8496.
Onshore yuan slipped 0.34 per cent to a new six-year low of 6.8214, before narrowing its losses to 0.03 per cent or 23 basis points to trade at 6.8050.
The People’s Bank of China cut the reference rate of the yuan against the US dollar by 230 basis points to a new record low of 6.8115. It is the first time since 2010 that the reference rate has been lower than 6.8 against the greenback.
The currency is allowed to trade 2 per cent either side of the fixing rate.
The PBOC is caught between a rock and a hard place in the face of a strong US dollar and huge waves of capital outflows
In June this year, Reuters cited official sources as saying that China’s central bank would tolerate a fall in the yuan to as low as 6.8 per dollar in 2016 in order to support the economy.
The People’s Bank of China was so angry about the report that it published a strongly-worded statement denying it, but without naming Reuters.
The weaker yuan comes as the dollar recovers from the shock of Donald Trump’s victory in the US presidential election, and resumes its upward trajectory.
The US dollar index, a gauge of the greenback against a basket of major currencies, is trading almost flat after a 0.12 per cent rise yesterday. The index surged 0.81 per cent on Wednesday after absorbing fears of a Trump victory.
“The PBOC is caught between a rock and a hard place in the face of a strong US dollar and huge waves of capital outflows,” said Stephen Innes, senior trader at Oanda.
“The market is pending clarity on the trade front but I suspect if, or when, any global trade policies are implemented, they would be executed in a very controlled fashion to have limited impact on the global economy.”
The British pound continued its strength for the third consecutive day, trading 0.82 per cent stronger at 1.2663 to the US dollar, while the Japanese yen broke its five-day weakness to trade 0.38 per cent stronger at 106.38.
