China lets yuan slide, starts fight to halt turbulence

Thu Jan 7, 2016 12:02pm EST
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By Lu Jianxin and Patrick Graham

SHANGHAI/LONDON (Reuters) - China allowed the biggest fall in the yuan in five months on Thursday, pressuring regional currencies and sending global stock markets tumbling as investors feared it would trigger competitive devaluations.

For the second time this week China's stock markets were suspended for the day before an announcement late in the evening in Shanghai that authorities were abandoning the new circuit-breaking mechanism for halting trade in overly volatile markets.

That heightened anticipation about how Chinese markets may respond on Friday.

The People's Bank of China shocked traders by setting the official midpoint rate on the yuan, also known as the renminbi (RMB), 0.5 percent weaker at 6.5646 per dollar on Thursday, the lowest since March 2011.

That tracked record losses in the more open offshore currency market and was the biggest daily fall since an abrupt devaluation of nearly 2 percent last August.

But dealers said the PBOC had then intervened heavily to reverse a more than 1 percent fall in offshore rates for the yuan after they hit a record low of 6.7600 per dollar.

The yuan took back all of its losses to stand a quarter of a percent stronger at 6.6755 in European and U.S. trade.

"It's very similar to the previous round (in August) where they weaken the official rate and then intervene against the dollar offshore to beat back the speculators," said a yuan trader with one international bank in London.   Continued...

People sit in front of an electronic boarding that was turned off after trading was suspended, at a brokerage house, in Beijing, China, January 7, 2016.  REUTERS/Jason Lee