Euro, yen surge as commodity currencies sag on China jitters

LONDON, Jan 6 (Reuters) – China’s yuan fell on Wednesday to its lowest since the 2010 opening of its offshore market, extending a slide that has unnerved global financial markets and sent currency investors rushing for the security of Japan’s yen.

The People’s Bank of China (PBOC) set the yuan reference rate at 6.5636 against the dollar, up 0.02 per cent from Thursday’s fix and higher than the yuan’s closing rate of 6.5929 in onshore trading on Thursday.

The yuan’s weakening trend continued on Wednesday both in offshore and onshore markets, but experts said the government could tolerate such fluctuations and should focus on boosting the real economy.

The yuan has been volatile after the PBoC unexpectedly devalued the currency by the most in two decades in August.

“That would be a way of starting to stabilize the market”.

China’s central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.

That raised concerns that China might be aiming for a competitive devaluation to help its struggling exporters.

The dollar index.DXY which measures the greenback against a group of six currencies was last up 0.8 percent at 99.049, which was more than half a percentage point below the one-month high set earlier this week.

While China’s defense of the yuan stabilized the currency for nearly four months following an Aug 11 devaluation, the intervention led to the first-ever annual decline in the nation’s foreign-exchange reserves.

China’s central bank guided the yuan a shade higher Friday, reversing eight days of declines in the currency that rocked financial markets and fanned renewed worries over the health of the world’s second-largest economy.

It also makes commodities denominated in US dollars more expensive for Chinese buyers, which could hurt demand and thus further depress commodity prices in a vicious chain reaction.

The Federal Reserve was closely monitoring the sell-off in stocks that shook world markets on Thursday, while U.S. Republican presidential candidates took aim at Chinese policies they claimed are created to gain a trade advantage.

Though much could depend on the 1330 GMT payrolls figures, Wall Street, which opens at 1430 GMT, was expected to see a small bounce after a five percent fall this week.

The halt mechanism, meant to calm market volatility, was having the opposite effect, according to a 22-year-old retail investor in Guangzhou surnamed Hu.

The PBOC’s Friday setting is “a signal it does not intend to keep allowing the yuan to fall”, said Yoshinori Shigemi, global market strategist at JPMorgan Asset Management.

“We’ve had a stabilisation in China overnight, but the question remains as to whether China’s economy is headed for a hard or soft landing, ” said Richard McGuire, senior fixed income strategist at Rabobank. Salcioli said as yet few of them had moved to sell.