Faber: Yuan devaluation is completely meaningless

The central bank put the yuan’s central parity rate at 6.4010 yuan for $1.0, the China Foreign Exchange Trade System said, a drop of 1.11 percent from the previous day’s 6.3306.

China’s central bank said on Thursday that its currency would remain strong in the long run, despite worries over the yuan’s devaluation. “The central bank’s goal is to let market decide Chinese currency’s exchange rate and the PBOC has withdrawn from regular intervention in the foreign exchange market”.

The reference point is a guiding rate, from which trade can rise or fall by two per cent throughout the day.

“The primary reason for weaker Asian currencies has been the one-off devaluation of the Chinese yuan and the subsequent depreciation”, said Jason Daw, head of Asia currency strategy at Societe Generale AG in Singapore.

All three indices ended with gains for the week, with the Dow Jones Industrial Average adding 104.02 points (0.6 percent) to 17,477.40.

“We are seeing a much calmer market today… now it’s understood that it’s actually not an intentional steering of the yuan exchange rate, but rather… a more market-driven move”, said Commerzbank currency strategist Esther Reichelt in Frankfurt.

Following Tuesday’s “one-off depreciation”, which left the yuan nearly 2 percent weaker against the U.S. dollar, the PBOC has lowered the midpoint rate twice.

“We expect the currency to continue to depreciate over the next few days, given downward pressures… suggesting that the Chinese economy is slowing again“, said Susan Joho, an economist at the private bank Julius Baer.

The yuan, also known as the renminbi, is used to execute global transactions and payments.

But he said the PBoC will exercise “effective management” in case of large fluctuations and dismissed rumours that officials had set a target for a 10 percent depreciation in the yuan to spur exports.

On Tuesday, China devalued the currency by the most in two decades to cushion its exports.

Luxury goods stocks like the French giant LVMH and Coach, were lower, along with automakers like German carmaker BMW which lost 2.6 percent and General Motors which lost 2.4 percent. Even if the Chinese government liberalizes the foreign exchange market and gives up capital flow control, which direction the yuan would ultimately go is hard to say. Many see another global crisis on the horizon as these yuan moves have big implications for other Emerging Market currencies, economies, and their debt. You needed to create domestic demand, and so they raised interest rates.