CNN

China lets the yuan weaken to 7 against the dollar, its lowest in a decade

Aug 5, 2019, 5:27 AM
Stock Photo...
Stock Photo

(CNN) — The Chinese yuan dropped sharply on Monday to its weakest level against the US dollar in more than a decade, raising fears of further dangerous escalation in the US-China trade war.

The yuan fell after the People’s Bank of China set its daily reference rate for the currency at 6.92, the weakest rate since December. China’s central bank sets a “band” every day within which the yuan’s value is only allowed to move 2% up or down.

In mainland China, one US dollar now buys about 7.03 yuan. In trading outside of China, where the yuan moves more freely, it stands at 7.07 to the dollar. Earlier, it had slipped to a record low offshore.

The symbolically important threshold of 7 was last crossed during the 2008 financial crisis.

The central bank said that it is fully capable of keeping the yuan “reasonable and balanced,” adding in a statement that Monday’s weakness was mostly because of “trade protectionism and new tariffs on China.” President Donald Trump announced a new round of tariffs on the country last week.

Devaluing the yuan is one way China has of retaliating against Trump’s tariffs, but it’s fraught with risk.

The market took the Chinese central bank’s decision to lower the fixing rate that much as a “message of intent” to Trump, said Chris Weston, head of research at Pepperstone Group, in a research note.

He added that the yuan’s depreciation will trigger fears about capital flight from China, along with a subsequent tightening of financial conditions in the Chinese economy.

In mainland China, one US dollar now buys about 7.03 yuan. In trading outside of China, where the yuan moves more freely, it stands at 7.07 to the dollar. Earlier, it had slipped to a record low offshore.

In its statement, China’s central bank said it would take targeted measures as necessary to crack down on speculation and stabilize market expectations.

Citigroup strategist Gaurav Garg saw the decision to “unleash” the exchange rate as a potential response to the trade tensions that “may further complicate the US-China negotiations.”

“US authorities have been sensitive to currency moves,” he wrote in a research note. “They have on multiple occasions blamed currency manipulation to dampen the impact of trade tariffs and have insisted on currency stability as an important part of any agreement between the US and China.”

Markets across Asia tumbled in early trading on fears about the trade tension.

Japan’s Nikkei dropped 1.7% and South Korea’s Kospi lost 2.6%. The Shanghai Composite Index fell 1.6%. In Hong Kong, where protest leaders called on people to participate in strikes across the city, the Hang Seng Index fell as much as 3.1%, the biggest drop since October.

“Risk aversion had certainly been the latest theme for markets, one to weigh on both Asia equities and currencies,” said Jingyi Pan, a market strategist for IG Group. “Trade jitters linger for Asia markets going into the fresh week.”

Trump ratcheted up his country’s trade war with China last week when he announced plans Friday to slap a 10% tariff on $300 billion worth of goods. That means effectively all Chinese exports to the United States will soon be taxed.

Beijing, meanwhile, said it was ready for a fight.

Here are some of the other big moves on Asian markets at 3:00 p.m. Hong Kong time.

  • HSBC shares that are listed in Hong Kong dropped 1.5% after the British banking giant announced John Flint will step down as chief executive. HSBC said a change was needed because of an “increasingly complex and challenging global environment.”
  • Hang Seng Bank, a unit of HSBC and one of Hong Kong’s largest lenders, tumbled 3.8%. In an earnings report, the bank cited a “a challenging operating environment” and slowing economic growth in the city. It forecast full-year GDP growth for Hong Kong to reach between 1% and 1.5%, down from from last year’s 3%. “Downshifts in retail sales and trade growth signal that the economic environment will remain challenging,” the bank said.
  • Last week, the S&P 500 index and the Nasdaq Composite Index both posted the worst week for the year, down 3.1% and 3.9% respectively. The Dow Jones Industrial Average was down 2.6% for the week.

The-CNN-Wire
™ & © 2019 Cable News Network, Inc., a Time Warner Company. All rights reserved.

Today’s Top Stories

CNN

A US Soccer spokesperson told CNN in an email that Pulisic, who collided with the Iranian goalkeepe...
Kevin Dotson and Matias Grez, CNN

Christian Pulisic is day-to-day after being taken to hospital with pelvic contusion suffered scoring winning goal for US

A US Soccer spokesperson told CNN in an email that Pulisic, who collided with the Iranian goalkeeper after scoring his goal, went for medical scans but "was not hospitalized."
21 hours ago
USGS posted two photos on Monday from a Civil Air Patrol flight which shows the Mauna Loa volcano e...
Chandler Holt

Hawaii’s Mauna Loa is erupting for the first time since 1984

The world's largest active volcano, Mauna Loa on Hawaii, is erupting for the first time in nearly 40 years. Though lava is flowing down one side of the volcano, the eruption in Hawaii Volcanoes National Park is not threatening communities.
2 days ago
Flowers and stuffed animals are lined up outside a sign along Pullman Road in Moscow, Idaho, to pay...
Elizabeth Wolfe and Eric Levenson

University of Idaho students return from break, no arrests in homicides

After more than two weeks since four students were fatally stabbed, students at the University of Idaho returned to class on Monday.
2 days ago
Former Vice President Mike Pence is seen here with audience members after appearing at at CNN town ...
Veronica Stracqualursi, CNN

Pence says Trump was ‘wrong’ for dinner with Holocaust denier

Former Vice President Mike Pence says former President Donald Trump was wrong for having dinner with a Holocaust denier and should apologize for it.
2 days ago
In this image provided by NASA, the Earth and its moon are seen from NASA's Orion spacecraft on Mon...
Jackie Wattles, CNN

NASA’s Orion reaches record-breaking distance from Earth

NASA confirmed that Orion had reached the midpoint of its uncrewed mission around the moon — about 270,000 miles (434,523 kilometers) from Earth.
2 days ago
People wait in line to enter Macy's department store during Black Friday in New York City on Novemb...
Jordan Valinsky, CNN Business

Online Black Friday sales set a new record

Online shopping is expected to remain strong through Cyber Monday.
3 days ago

Sponsored Articles

Happy joyful smiling casual satisfied woman learning and communicates in sign language online using...
Sorenson

The best tools for Deaf and hard-of-hearing workplace success

Here are some of the best resources to make your workplace work better for Deaf and hard-of-hearing employees.
Team supporters celebrating at a tailgate party...
Macey's

8 Delicious Tailgate Foods That Require Zero Prep Work

In a hurry? These 8 tailgate foods take zero prep work, so you can fuel up and get back to what matters most: getting hyped for your favorite
christmas decorations candles in glass jars with fir on a old wooden table...
Western Nut Company

12 Mason Jar Gift Ideas for the 12 Days of Christmas [with recipes!]

There are so many clever mason jar gift ideas to give something thoughtful to your neighbors or friends. Read our 12 ideas to make your own!
wide shot of Bear Lake with a person on a stand up paddle board...

Pack your bags! Extended stays at Bear Lake await you

Work from here! Read our tips to prepare for your extended stay, whether at Bear Lake or somewhere else nearby.
young boy with hearing aid...
Sorenson

Accommodations for students who are deaf and hard of hearing

These different types of accommodations for students who are deaf and hard of hearing can help them succeed in school.
Young woman receiving laser treatment...
Form Derm Spa

How facial plastic surgery and skincare are joining forces

Facial plastic surgery is not only about looking good but about feeling good too. The medical team at Form Spa are trained to help you reach your aesthetic outcomes through surgery and through skincare and dermatology, too.
China lets the yuan weaken to 7 against the dollar, its lowest in a decade