Yuan slumps

- Advertisement -

SINGAPORE- The yuan sank on Wednesday as a new Sino-US trade war shook Chinese markets returning from an extended Lunar New Year break, while the yen jumped on rising bets of further Bank of Japan (BOJ) rate hikes this year.

The dollar rose more than 0.5 percent against the yuan to a high of 7.2856 shortly after onshore trading opened despite the People’s Bank of China (PBOC) setting a stronger-than-expected yuan midpoint rate, around which the currency is allowed to trade in a 2 percent band.

The fixing had been closely watched by investors for clues on whether Beijing would allow for a weaker currency to blunt the impact of sweeping new tariffs imposed by US President Donald Trump.

- Advertisement -

China on Tuesday slapped tariffs on US imports in a swift response to the US duties on Chinese goods, and Trump said the same day he is in no hurry to speak to Chinese President Xi Jinping to try to defuse a new trade war between the world’s two largest economies.

“Our base case is that China will increase its tolerance for currency weakness in response to the US tariffs,” said Carol Kong, a currency strategist at Commonwealth Bank of Australia (CBA).

“I think ultimately, allowing the yuan to weaken will be one of the responses China takes, and I would expect further retaliation from China if the US retaliates with even more tariffs.”

The offshore yuan was little changed at 7.2892 per dollar on Wednesday, after falling to a record low of 7.3765 per dollar at the start of the week.

Author

- Advertisement -

Share post: