China devalues currency amid economic concerns

It’s the largest devaluation of the renminbi since 1994, when the current system was put into place.

The US government has also accused China of keeping the yuan undervalued to boost its exports in the past. But analysts cautioned against seeing the change as a direct effort to help Chinese exporters. But as Quartz writes, the labeling of the material as obscene may only have piqued interest.

Stocks reversed much of Monday’s gains, with the Dow Jones dropping 174.05 points, or 1%, to 17,441.12, and the S&P 500 down 15.57 points at 2088.61.

However, one economist doubted Beijing was reacting only to the weak data and said the move was part of its reform agenda to help the yuan become an worldwide reserve currency.

An underpass tunnel sign stands near the China’s central bank or People’s Bank of China in Beijing Tuesday, August 11, 2015.

China manages the exchange rate through an official midpoint, from which it can vary 2 per cent each day.

Ordering Chinese banks to re-align their Dollar/Yuan reference rate – and resulting in an immediate drop to 3-year lows for the CNY – the People’s Bank of China said the move would “enable the exchange rate to play a key role in adjusting foreign exchange demand and supply”.

Two Fed policymakers said separately on Monday they were preparing to vote for a rate hike at next month’s meeting. “Traders are looking for U.S. dollar strength across the Asia region and pressure on all local currencies”, he said. Exports fell by an unexpectedly large 8.3 percent in July.

Emerging market currencies which have already fallen sharply in the past year as the US dollar has strengthened, slumped again on Tuesday.

“China is obviously concerned about its economic growth and this devaluation will make their goods more competitive in export markets; they have significant growing competition from other Asian countries, some with very dynamic economies”, echoed John Carey, portfolio manager at Pioneer Investments.

“We are not overly anxious about the won (currency), but we are closely watching the market to see if there’s any excessive volatility happening”, a South Korean foreign exchange official told Reuters. The Nasdaq declined 65 points, or 1.3 percent, to 5,036.

“That meant that the Chinese currency had also been rising against its regional trading rivals”, he said.

European shares fell. The pan-European FTSEurofirst 300 index was down 1 percent, led lower by vehicle makers and luxury goods companies, whose products have just got more expensive for Chinese consumers.

The yuan had been locked in an extremely narrow intraday range since March, varying only 0.3 percent.

The Australian dollar, often used as a liquid proxy for the yuan, fell 1.2 percent to $0.7322.