China lets yuan fall further, fuels fears of 'currency war'

Wed Aug 12, 2015 7:23pm EDT
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By Pete Sweeney and Lu Jianxin

SHANGHAI (Reuters) - China's currency fell to a four-year low on Wednesday, slumping for a second day, after a central bank devaluation on Tuesday, and government sources believe the yuan may be allowed to slide even further to help the country's exporters.

The yuan traded in China hit a low of 6.4510 per U.S. dollar, its lowest since August 2011, and the currency fared worse in international trade, touching 6.59 to the dollar.

The currency has lost 3.5 percent against the U.S. dollar in China in the last two days, and around 4.8 percent in global markets after the People's Bank of China (PBOC), the central bank, changed the way it calculates the reference rate around which the yuan is allowed to trade in a two percentage point band.

The PBOC said it would now calculate the daily yuan fix, by taking more notice of market forces, including the closing price in the previous day's trading session.

The devaluation sparked fears of a global "currency war" and accusations that Beijing was unfairly supporting its exporters, but the central bank on Wednesday sought to reassure financial markets that it was not embarking on a steady depreciation.

"Looking at the international and domestic economic situation, currently there is no basis for a sustained depreciation trend for the yuan," the People's Bank of China (PBOC) said.

After the yuan slid further in early in Wednesday trade currency dealers said Chinese state-owned banks were seen selling dollars on behalf of the PBOC to restrain the yuan's fall, and the spot market rate recovered late in the day to close 6.3870, a rate which will influence Thursday's setting.

"Apparently, the central bank does not want the yuan to run out of control," said a trader at a European bank in Shanghai.   Continued...

Chinese 100 yuan banknotes are seen in this picture illustration taken in Beijing in this July 11, 2013 file photo. REUTERS/Jason Lee/Files