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| China plays down devaluation fears as yuan cut for third straight day | China plays down devaluation fears as yuan cut for third straight day |
| (about 3 hours later) | |
| China has attempted to to quell fears its currency would fall further, saying the yuan is close to market levels following declines that sparked fears of a “currency war” if other governments respond by pushing down their own exchange rates. | China has attempted to to quell fears its currency would fall further, saying the yuan is close to market levels following declines that sparked fears of a “currency war” if other governments respond by pushing down their own exchange rates. |
| There is “no basis for persistent and substantial devaluation,” said a deputy central bank governor, Zhang Xiaohui, at a news conference on Thursday. Zhang said the yuan is close to “market levels” after two days of declines. | There is “no basis for persistent and substantial devaluation,” said a deputy central bank governor, Zhang Xiaohui, at a news conference on Thursday. Zhang said the yuan is close to “market levels” after two days of declines. |
| China cut the reference rate for its currency for the third straight day, on Thursday after the surprise devaluation of the yuan this week unsettled global financial markets. The central bank put the yuan’s central parity rate at 6.4010 yuan for $1, the China Foreign Exchange Trade System said, a drop of 1.11% from the previous day’s 6.3306. | China cut the reference rate for its currency for the third straight day, on Thursday after the surprise devaluation of the yuan this week unsettled global financial markets. The central bank put the yuan’s central parity rate at 6.4010 yuan for $1, the China Foreign Exchange Trade System said, a drop of 1.11% from the previous day’s 6.3306. |
| Related: China's currency devaluation could spark 'tidal wave of deflation' | |
| The yuan fell 1.9% on Tuesday after a surprise change in exchange rate policy that Beijing said was aimed at making the tightly controlled currency more market-oriented. It fell again on Wednesday and by midday on Thursday was down 0.3%. Those falls amount to a 3.1% drop for the week. | The yuan fell 1.9% on Tuesday after a surprise change in exchange rate policy that Beijing said was aimed at making the tightly controlled currency more market-oriented. It fell again on Wednesday and by midday on Thursday was down 0.3%. Those falls amount to a 3.1% drop for the week. |
| Shock waves from the devaluation had spread through financial markets, causing stocks and Asian currencies to tumble. But shares in Asia rose after the Chinese central bank’s assurances. Japan’s Nikkei shrugged off early losses and downbeat capital expenditure figures to end up 1% at 20,595.55. European markets also opened higher, with gains of around 1.5%, while the FTSE 100 was 0.7% ahead in early trading on Thursday. | Shock waves from the devaluation had spread through financial markets, causing stocks and Asian currencies to tumble. But shares in Asia rose after the Chinese central bank’s assurances. Japan’s Nikkei shrugged off early losses and downbeat capital expenditure figures to end up 1% at 20,595.55. European markets also opened higher, with gains of around 1.5%, while the FTSE 100 was 0.7% ahead in early trading on Thursday. |
| “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 market certainly perceives that the Chinese authorities don’t want the CNY to weaken too dramatically.” | “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 market certainly perceives that the Chinese authorities don’t want the CNY to weaken too dramatically.” |
| Thursday’s central bank comments came after analysts said allowing market forces free rein could drive the yuan sharply lower. | Thursday’s central bank comments came after analysts said allowing market forces free rein could drive the yuan sharply lower. |
| “It is very possible that we could see a 10 to 15% drop in the exchange rate against the U.S. dollar in the next week or two,” said Duncan Innes-Ker of The Economist Intelligence Unit in a research note. | “It is very possible that we could see a 10 to 15% drop in the exchange rate against the U.S. dollar in the next week or two,” said Duncan Innes-Ker of The Economist Intelligence Unit in a research note. |
| Investors saw Beijing’s move as an effort to benefit its exporters but many economists rejected that view because global demand is weak. | Investors saw Beijing’s move as an effort to benefit its exporters but many economists rejected that view because global demand is weak. |
| The yuan’s decline was small compared with fluctuations of freely traded currencies. But after a decade of little or no movement, the change rattled financial markets and threatened to fan political tensions with Europe and the United States. | The yuan’s decline was small compared with fluctuations of freely traded currencies. But after a decade of little or no movement, the change rattled financial markets and threatened to fan political tensions with Europe and the United States. |
| Related: This isn’t China’s Lehman moment – yet | Linda Yueh | |
| While the International Monetary Fund welcomed Beijing’s support for market forces, the change sparked complaints in Washington by lawmakers who accuse Beijing of manipulating its currency to gain a trade advantage. | While the International Monetary Fund welcomed Beijing’s support for market forces, the change sparked complaints in Washington by lawmakers who accuse Beijing of manipulating its currency to gain a trade advantage. |
| “This move may also trigger a new currency war” if central banks respond by trying to depress their country’s own exchange rates, said Nicholas Teo of CMC Markets in a report. | “This move may also trigger a new currency war” if central banks respond by trying to depress their country’s own exchange rates, said Nicholas Teo of CMC Markets in a report. |
| China is exporting “deflationary pressure,” said Morgan Stanley analysts Hans Redeker, Ian Stannard and Sheena Shah in a report. | China is exporting “deflationary pressure,” said Morgan Stanley analysts Hans Redeker, Ian Stannard and Sheena Shah in a report. |
| “This is not a marginal event, given China’s economic weight,” they said. | “This is not a marginal event, given China’s economic weight,” they said. |
| China’s economic growth has slowed to an annual rate of just 7%, which is healthy for most countries but far below the previous decade’s double-digit pace. | China’s economic growth has slowed to an annual rate of just 7%, which is healthy for most countries but far below the previous decade’s double-digit pace. |
| Beijing’s move could complicate the US Federal Reserve’s decision about when to raise interest rates that have been near zero since the 2008 global financial crisis. The Fed was expected to act later this year, possibly as early as next month. | Beijing’s move could complicate the US Federal Reserve’s decision about when to raise interest rates that have been near zero since the 2008 global financial crisis. The Fed was expected to act later this year, possibly as early as next month. |
| A weaker yuan would reduce the price of Chinese goods, pushing down already-low US inflation of 1.3%. The Fed wants to be “reasonably confident” inflation is returning to its 2% target before raising rates. | A weaker yuan would reduce the price of Chinese goods, pushing down already-low US inflation of 1.3%. The Fed wants to be “reasonably confident” inflation is returning to its 2% target before raising rates. |