“The sudden move on the part of China to devalue its currency yuan will have an adverse impact on India’s exports of textiles and clothing, which are facing already sluggish growth due to recessionary conditions in global markets“, Texprocil chairman R K Dalmia said in a statement here.
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A surprise shift Tuesday in how the People’s Bank of China (PBOC) fixes the currency initially sparked fears that Chinese leaders were concerned about the country’s growth prospects and dragged down global markets.
The spot market opened at 6.3880 and was changing hands at 6.4080 after the PBOC comments, 210 pips weaker than the previous day’s close and only 0.1% away from the guidance point, the closest it has traded to the guidance rate since November 2014.
The Chinese currency continued its sharp fall for a third consecutive day on Thursday after the central bank reformed the exchange rate formation system.
Gold for immediate delivery lost 0.6 percent to $1 117.41 an ounce by 11:22 am in London, according to Bloomberg generic pricing. Going forward, the yuan will be fixed at a rate within 2 percentage points of the previous day’s market rate.
There is strong chatter that Chinese officials are pushing the PBOC to let the yuan slide another 5-7% against the greenback although bank officials denied that today. Futures for December delivery declined 0.6 percent to $1 117.10 on the Comex in New York.
“The exchange rate fluctuation is normal, and it can better reflect market expectations”, it said.
The move triggered concerns over a currency war to boost China’s exports.
European stock markets have rallied at the start of trading, rebounding slightly from heavy recent losses linked to China’s weakening of its currency. The fear is that China’s economy is slowing more than expected and that U.S. companies that do business there would be hurt by a stronger dollar related to the yuan depreciation, which would dent sales of U.S. products in China.
ANALYST VIEW: The Chinese central bank’s “opaque communications policy may well have led to panic over-selling earlier in the week”, Angus Nicholson of IG markets said in a commentary.
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The prospect of a US interest rate rise by the Federal Reserve next month dimmed as a result, dragging the US dollar, financial stocks and US Treasury yields lower.
