Some members of Congress have backed legislation to impose retaliatory tariffs.
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China devalued its tightly controlled currency Tuesday following a slump in trade, allowing the yuan’s biggest one-day decline in a decade. Emerging market and commodities currencies are facing downward pressure, and we are seeing increasing volatilities in global capital flow.
Economists pointed out that until Tuesday, China had held the yuan firm while its neighbors had debased their currencies.
Both the European Union and Japan have depressed the value of the euro and the yen over the last two years.
“China is the second-largest economy in the world, and they are certainly going through a stage right now where growth is not as robust as it has been”, said Michael Scanlon, a managing director at John Hancock Asset Management.
S. dollar edged higher.
“The move makes a Chinese hard landing less likely at the margin, which is good for the U.S. economy, U.S. markets and the Fed”, Perli wrote Tuesday in a note to clients.
China manages the exchange rate through an official midpoint, from which it can vary 2 percent each day. The euro rose to $1.1037 from $1.1021.
“It’s another step by the People’s Bank to support the economy and stabilise the economy, which continues to weaken”, said Craig Bishop, lead strategist of US fixed-income strategies at RBC Wealth Management.
Still, Feroli said, “we think this a minor stumbling block for a September” rate increase.
“The PBOC aims to move the renminbi to a freer floating and accessible currency, prerequisites for it to be given the IMF’s reserve stamp of approval, and will see it move in a wider band”, said Angus Campbell, analyst at FXpro. The Dow Jones industrial average lost 157 points, or 0.9 percent, to 17,457.
A lower Chinese yuan could boost Chinese exports, noted Shenfeld and Exarhos.
The country’s central bank took the decision to devalue Yuan after a string of disappointing economic data, especially exports which fell 8.3 per cent in July. More than 20 central banks from India to South Korea have loosened monetary policy this year to spur growth and fend off deflation, but some of Asia’s most interventionist central banks appeared to be holding their nerve on currency policy.
Beijing is likely to move cautiously, but market expectations of further weakening “could quickly become entrenched” and cause the yuan to “depreciate quite quickly and significantly”, said Wang. The paper said this is the largest devaluation since China’s modern exchange rate system was introduced in early 1994.
China’s surprising move to cut its daily reference rate by 1.9 percent Tuesday rippled through global markets.
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At present, Beijing uses a “managed float” which restricts the yuan to fluctuating 2% either side of a point set by the People’s Bank of China based on the previous day’s trading.
