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Trump hits out at China as yuan drops to 11-year low Trump hits out at China as yuan drops to 11-year low
(32 minutes later)
Donald Trump has accused China of currency manipulation after the Chinese yuan broke through levels not seen since 2008.Donald Trump has accused China of currency manipulation after the Chinese yuan broke through levels not seen since 2008.
The yuan passed the seven-per-dollar level for the first time in 11 years - a move which surprised traders as Beijing usually supports the currency.The yuan passed the seven-per-dollar level for the first time in 11 years - a move which surprised traders as Beijing usually supports the currency.
The US President tweeted it was "currency manipulation" which would "greatly weaken China". It also rattled US stock markets. The main indexes recorded sharp losses in early trading.
The move comes amid rising trade tension between the US and China.The move comes amid rising trade tension between the US and China.
Chinese authorities said on Friday that they would fight back against Mr Trump's decision to impose 10% tariffs on $300bn of Chinese imports.Chinese authorities said on Friday that they would fight back against Mr Trump's decision to impose 10% tariffs on $300bn of Chinese imports.
The move brought an end to a month-long trade truce, which was rekindled on Monday when the president started tweeting about the yuan's move. Mr Trump's move brought an end to a month-long trade truce, which was rekindled on Monday when the president started tweeting about the yuan's move.
The US President tweeted it was "currency manipulation" which would "greatly weaken China".
The US Treasury department defines currency manipulation as when "countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade".The US Treasury department defines currency manipulation as when "countries manipulate the rate of exchange between their currency and the United States dollar for purposes of preventing effective balance of payments adjustment or gaining unfair competitive advantage in international trade".
No country has officially been named a currency manipulator by the US since Bill Clinton's administration did so to China in 1994.No country has officially been named a currency manipulator by the US since Bill Clinton's administration did so to China in 1994.
China's central bank said it was not using its yuan currency as a tool to cope with external disturbances such as trade disputes. The yuan's exchange rate now was at an appropriate level in line with China's economic fundamentals and market demand and supply, it added.China's central bank said it was not using its yuan currency as a tool to cope with external disturbances such as trade disputes. The yuan's exchange rate now was at an appropriate level in line with China's economic fundamentals and market demand and supply, it added.
In offshore markets, the yuan fell to its weakest since international trading in the Chinese currency began.In offshore markets, the yuan fell to its weakest since international trading in the Chinese currency began.
It now takes 7.0835 yuan to buy a dollar. The currency, down 1.5% in offshore markets, is heading for its biggest one-day drop in four years.It now takes 7.0835 yuan to buy a dollar. The currency, down 1.5% in offshore markets, is heading for its biggest one-day drop in four years.
There are two yuan markets. The offshore one - based in places such as Hong Kong, Singapore, Taiwan, and London - doesn't fluctuate within a tight band like the onshore yuan market and is free of Beijing's control in that respect.There are two yuan markets. The offshore one - based in places such as Hong Kong, Singapore, Taiwan, and London - doesn't fluctuate within a tight band like the onshore yuan market and is free of Beijing's control in that respect.
"The fallout has been most evident in the Asia region," MUFG analyst Derek Halpenny said. "We certainly expect to see general FX volatility increase in the coming days, with daily PBOC [People's Bank of China] yuan fixes an important focus each day.""The fallout has been most evident in the Asia region," MUFG analyst Derek Halpenny said. "We certainly expect to see general FX volatility increase in the coming days, with daily PBOC [People's Bank of China] yuan fixes an important focus each day."
While other Asian currencies such as the South Korean won were hit, falling 1.4% against the dollar, it also spurred demand for safe-haven currencies such as the Swiss franc and Japanese yen.While other Asian currencies such as the South Korean won were hit, falling 1.4% against the dollar, it also spurred demand for safe-haven currencies such as the Swiss franc and Japanese yen.
The breaching of the seven-per-dollar limit could lead to a flight out of domestic assets. In the last decade, there have been two periods of yuan weakness, in 2010 and a slower contraction between 2014 and 2016.The breaching of the seven-per-dollar limit could lead to a flight out of domestic assets. In the last decade, there have been two periods of yuan weakness, in 2010 and a slower contraction between 2014 and 2016.
Those incidents precipitated bursts of capital flight that distorted the Chinese economy and forced the authorities to prop up the currency by using capital controls and purchases by state-run banks.Those incidents precipitated bursts of capital flight that distorted the Chinese economy and forced the authorities to prop up the currency by using capital controls and purchases by state-run banks.
Meanwhile, Chinese seed and food company shares and rare-earth firms were boosted on hopes that Beijing will not buy more from the US.Meanwhile, Chinese seed and food company shares and rare-earth firms were boosted on hopes that Beijing will not buy more from the US.