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China Central Bank Says Yuan Should not Fall Further
The move surprised the market and prompted the lowest valuation of the yuan since October 2012.
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The Chinese central bank continued to cut the yuan’s reference rate on Wednesday and Thursday by 1.6 percent and 1.1 percent, respectively, making global traders nervous.
As the yuan fell for the third straight day, the People’s Bank of China 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 greenback dipped 0.1 percent at 124.28 yen, ending the week marginally higher. It has dropped a total of 2.9% since Tuesday.
The yuan’s strengthening Friday eased some worries about the implications of its rapid decline in other regional currencies.
Japan’s Nikkei Stock Average was about flat, while Australia’s S&P ASX 200 was up 0.2%.
ACROSS THE POND: In Europe, Germany’s DAX climbed 1 percent and France’s CAC-40 surged 1.4 percent The FTSE 100 index of leading British shares was flat.
“There is a degree of calm returning to the market”, said Mitul Kotecha, head of Asia-Pacific FX strategy for Barclays in Singapore told Reuters.
The PBOC has stopped “regularly” intervening in the foreign exchange market but could still conduct “effective management” of the yuan in cases of extreme volatility, Yi said.
By devaluing the currency now, China has also helped its exporters, whose goods will become relatively cheaper for overseas buyers.
It will also extend foreign-exchange trading hours in a potential move intended to forge the convergence of the yuan’s rate in China and the rate of the currency traded outside the mainland. Aluminum was little changed.
Speaking a day earlier, PBoC economist Massachusetts Jun dismissed the possibility that China was seeking to wage a currency war, saying there was no need as exports were expected to pick up in the second half of the year.
The yuan has depreciated nearly 3 per cent against the US dollar since Monday, a day before China’s central bank decided to devalue the redback.
China is exporting “deflationary pressure”, said Morgan Stanley analysts Hans Redeker, Ian Stannard and Sheena Shah in a report. “That’s the way it is”, he said-arguing the China concerns are “much ado about nothing”.
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Now, as China’s once-red-hot domestic economy slows down, the government and Chinese state-owned companies have stepped up a heavy flow of investment in a wide range of new ventures around the world.