China Tries to Calm Currency War Fears as Yuan Slips Further

China’s central bank on Friday raised the yuan currency against the US dollar by 0.05%, the national foreign exchange market said, ending three days of falls after a surprise devaluation.

During a press conference in the early hours of this morning, the People’s Bank of China (PBoC) said the strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided “strong support” to the exchange rate.

After falling in the previous two trading sessions, the yuan stabilized in Thursday trade close to the central rate.

It was a natural decision after the yuan appreciated 10 percent against a basket of major currencies since 2014 and after China injected almost a trillion yuan to save a stock market slump in June, aggravating the yuan’s depreciation pressure, the central bank said.

Beijing set the official exchange rate for the yuan 0.05pc higher against the dollar, a day after it sought to reassure markets that it was not engaging in a competitive devaluation.

The spot rate is now allowed to trade within a range of 2 percent above or below the official fixing on any given day, and had been consistently trading over 1 percent weaker than the midpoint since March.

China targets this year’s economic growth rate at 7 percent, marking the slowest expansion in 25 years.

China has allowed the value of its yuan currency to weaken against the dollar for a third consecutive day.

On Tuesday, China devalued the currency by the most in two decades to cushion its exports. The Dow Jones industrial average gave up 41 points, or 0.2 percent, to 17,363, and the Nasdaq composite fell four points, less than 0.1 percent, to 5,040.

“China does not have the need to start a currency war to gain advantage”, he said.

Tan said that China’s gross domestic product (GDP) accounted for 43 percent of the total created by the economies in the Asian Pacific region, so there is no doubt that other regional currencies will follow the yuan to move lower, while the magnitude of the falls in different currencies will vary.

Shares in exporters such as Caterpillar and General Electric fell in the market rout this week, though many economists say the yuan’s drop so far isn’t significant enough to do much damage.

“They are doing what any reserve bank would do – cutting interest rates and devaluing the currency to prop up the economy”.

China keeps a tight grip on its currency on worries sudden fund outflows or inflows could cause more financial risk and challenge its control, but it has also pledged to move towards more flexibility.

The adjustment spurred by Tuesday’s change to how the country determines the daily reference rate is basically already completed, Assistant Governor Zhang Xiaohui said in Beijing.