China cuts yuan rate against US dollar for second day

The yuan central parity rate announced by the China Foreign Exchange Trading System (CFETS) stood at 6.2298 against the greenback on Tuesday compared to 6.1162 on Monday, down almost 2 percent, the lowest level since April, 2013.

“Since China’s trade in goods continues to post relatively large surpluses, the yuan’s real effective exchange rate is still relatively strong versus various global currencies, and is deviating from market expectations”, the People’s Bank of China (PBOC) said.

“In a weak global economy, it will take a lot more than a 1.9 percent devaluation to jump-start Chinese exports”, said Stephen Roach, a senior fellow at Yale University and former Morgan Stanley non-executive chairman in Asia.

“This was a bombshell to the markets overnight”, said Dean Popplewell, chief currency strategist at Oanda in Toronto.

The dollar gave up immediate gains made after the devaluation, which ordinarily would boost dollar-denominated assets, but such is the importance of China to commodities demand that investors overlooked any weakness in the U.S currency.

But given the scale of other countries’ devaluations and the fairly limited benefit it’s offered them, it doesn’t seem like most analysts expect a dramatic recovery in China’s economic fortunes.

“The move signals that (China) is willing to use all available tools, including a weaker currency, to prop up exports and its domestic economy”, said Eswar Prasad, an worldwide economist at Cornell University.

NEW YORK – The yuan suffered its biggest fall in more than two decades on Tuesday, hitting a three-year low after the Chinese central bank surprised markets by devaluing it by nearly 2%, firing a broadside in what some analysts saw as a looming currency war. Exports in July plummeted by an unexpectedly steep 8.3 percent from a year earlier. This is different from other major currencies such as the U.S. dollar and the euro, which are freely traded.

The devaluation could be the first shot of a global currency war.

China allows the yuan to vary by up to two percent from the central rate each day.

A gauge of Asian currencies headed for the biggest drop since 2008 on Tuesday.

In the past, the central bank set the midpoint by a formula based on a basket of currencies, but the methodology was never publicized and many believed the midpoint was frequently used as a way to bend the market to policy goals. It earlier declined 2.1 percent.

Concerns around the health of the second-largest economy in the world also weighed on shares of U.S. automakers and industrials.

Even so, the U.S. has long argued the yuan has been kept “significantly undervalued” to help Chinese exporters, and Shanghai Finance University associate professor Qin Huanmei said Washington was likely to object to the depreciation.