China’s yuan slides in value after Beijing alters currency controls in the

Beijing allowed the yuan to drop to its three years low and the U. The People’s Bank of China said market forces would be given a bigger role in setting the exchange rate, leaving open the possibility of more declines.

There had been speculation last month that the BoE could raise rates as soon as November – potentially before the Fed – after Governor Mark Carney said the time for a hike was getting closer.

China devalued its currency on Tuesday after a run of poor economic data, a move it billed as a free-market reform but which some suspect could be the beginning of a longer-term slide in the exchange rate. Key markets for Chinese exports are EU, the US, Hong Kong, Japan and South Korea.

European stocks traded lower, with the French CAC (Euronext Paris:.FCHI) and the German DAX (^GDAXI) both down 1 percent after the news.

The euro, buoyed by the Greece deal, rose 0.2 per cent to $1.1040.

China made the unexpected decision for two reasons, said Sherry Cooper, chief economist at Dominion Lending Centres: to attempt to breath life into China’s slowing economy and to position the country to be a reserve currency. Should the US economy stumble in the coming weeks, “dollar strength would only further embolden the doves at the next meeting”, Feroli said.

Gold rose back above US$1,100 as investors reacted to the decision of the Chinese central bank to lower devalue the yuan. The Dow Jones industrial average lost 240 points, or 1.4 percent, to 17,373.

Bottom line, the analyst argued that China’s move will further add to the already “dampening” impact on euro area net trade, although overall export growth in the region remains “positive” due to more favorable developments in other trading partners.

What exactly the exchange rate was dependent on is secret, though significant capital outflows in recent months have suggested that the yuan should be losing value and it hasn’t. Exports fell by an unexpectedly large 8.3 percent in July.

Beijing will likely move cautiously, but market expectations of further weakening “could quickly become entrenched” and cause the yuan to “depreciate quite quickly and significantly”, Wang said. A weaker yuan will make Chinese exports more competitive and might trigger complaints from U.S. manufacturers. The central bank said it would now base the yuan’s midpoint on market makers’ quotes and the previous day’s closing price.

The People’s Bank of China set a centre point for Tuesday’s trading that was 1.9 per cent below Monday’s level, and the biggest one-day change in a decade.

Each 1 percent drop in the yuan erodes 767 million yuan ($121 million) from China Southern’s annual profit, according to the carrier’s 2014 financial report.

It was the biggest one-day fall since a massive devaluation in 1994 when China aligned its official and market rates.