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Chinese yuan fixed lower for third consecutive day
The People’s Bank of China (PBOC) tried to reassure jittery global markets on Thursday that there was no basis for further depreciation in the yuan given strong economic fundamentals. As the yuan fell for the third straight day, China’s central bank said the country’s strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided “strong support” to the exchange rate.
The yuan’s devaluation on Tuesday sent markets tumbling after the PBOC’s decision to push its official guidance rate down 2 percent and sparked fears of a “currency war”.
The PBOC said at the time that the move was a one-off depreciation, but drew accusations from U.S. politicians that Beijing was unfairly supporting its exporters. Sources involved in the Chinese policy-making process told Reuters that powerful voices within government were pushing for the yuan to go still lower, suggesting pressure for an overall devaluation of almost 10 percent.
Though the yuan opened slightly weaker on Thursday, the gap between the guidance rate and the traded spot market rate closed sharply as the central bank tried to slow a sharp sell-off that has knocked around 3.2 percent off the currency since Monday’s close.
The PBOC set the guidance rate 6.4010 per dollar prior to the market open, weaker than the previous fix of 6.3306.
The spot market opened at 6.3880 and was changing hands at 6.4076 after the PBOC comments, 206 pips weaker than the previous day’s close and only 0.1 percent away from the guidance point, the closest it has traded to the guidance rate since November 2014.
The spot rate is currently allowed to trade within a range of 2 percent above or below the official fixing on any given day, and had been consistently trading over 1 percent weaker than the midpoint since March.
The offshore yuan was trading 1.02 percent weaker than the onshore spot at 6.4764 per dollar.
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