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| China halts yuan devaluation with slight official rise against US dollar | China halts yuan devaluation with slight official rise against US dollar |
| (about 5 hours later) | |
| Fears of tit-for-tat currency devaluations by the world’s major economic powers eased on Friday after China’s central bank raised the value of the yuan against the US dollar by 0.05%, ending three days of falls instigated by the Beijing authorities. | |
| The higher fixing for the yuan came after the People’s Bank of China (PBoC) sought to reassure financial markets by pledging to seek a stable currency after a shock devaluation of nearly 2% on Tuesday. | |
| Related: China's economic mandarins are proving to be human after all | Related: China's economic mandarins are proving to be human after all |
| The daily reference rate was set at 6.3975 yuan to $1 giving the currency a slightly stronger rate than the 6.4010 set the previous day. | |
| But concerns remain that China’s slowing economy, and in particular its exports, will need a stimulus that can only come from further cuts in the exchange rate. | |
| A slew of recent figures have shown that growth in several key sectors has slowed to a crawl in response to contracting world trade. The demand for oil in China, a key measure of activity, fell in tandem with a fall in car sales. Exports tumbled in June by 8.3%. | |
| And China’s slump may be spreading across Asia. Japan’s economy likely shrank in April-June as exports fell and consumers cut back on spending, a poll of economists by Reuters showed. In the second quarter of the year South Korea suffered its weakest growth in six years. | |
| Commodity prices have slumped in reaction to the slowdown among some of the world’s biggest manufacturing nations. Brent crude remained below $50 a barrel and copper prices stabilised, but near lows for the year. Stock markets reliant on energy and mining companies, like the FTSE 100, have suffered heavy falls. | |
| Goldman Sachs said the yuan devaluation “has been important for commodity markets and we believe it signals that global macro conditions have changed”. | |
| It said China had joined a “negative feedback loop” that is pushing commodity prices down as growth slows and businesses and households, nervous about the future, reduce their borrowing and spending. | |
| “We believe the net commodity market effects are bearish,” it said. | |
| Concerns that further falls will take place over the coming weeks and months were dismissed by the PBoC. | |
| Beijing said the move was the result of switching to a more market-oriented method of calculating the daily reference rate which sets the value of the yuan, also known as the renminbi (RMB). | Beijing said the move was the result of switching to a more market-oriented method of calculating the daily reference rate which sets the value of the yuan, also known as the renminbi (RMB). |
| Previously authorities based the rate on a poll of market-makers, but will now also take into account the previous day’s close, foreign exchange supply and demand and the rates of major currencies. | |
| The yuan is still only allowed to fluctuate up or down 2% on either side of the reference rate. | The yuan is still only allowed to fluctuate up or down 2% on either side of the reference rate. |
| “Currently there is no basis for the renminbi exchange rate to continue to depreciate,” PBoC assistant governor Zhang Xiaohui said on Thursday. | |
| “The central bank has the ability to keep the renminbi basically stable at a reasonable and balanced level,” she said. | “The central bank has the ability to keep the renminbi basically stable at a reasonable and balanced level,” she said. |
| Speaking earlier this week another PBoC official said the central bank could directly intervene in the market, after reports it bought yuan on Wednesday to prop up the unit. | |
| “The central bank, if necessary, is fully capable of stabilising the exchange rate through direct intervention in the foreign exchange market,” PBoC economist Ma Jun said. | “The central bank, if necessary, is fully capable of stabilising the exchange rate through direct intervention in the foreign exchange market,” PBoC economist Ma Jun said. |
| China keeps a tight grip on its currency on worries sudden fund outflows or inflows could cause more financial risk and challenge its control, but it has also pledged to move towards more flexibility. | China keeps a tight grip on its currency on worries sudden fund outflows or inflows could cause more financial risk and challenge its control, but it has also pledged to move towards more flexibility. |
| Beijing is pushing for the yuan to become one of the reserve currencies in the International Monetary Fund’s special drawing rights (SDR) group. |