Global markets bounce back as yuan fears ease

The yuan tumbled 1.8 percent, the most in two decades, on the day of the devaluation and declines have since moderated as the PBOC intervened via agent banks and signaled its support for the currency.

On Thursday, the People’s Bank of China set the yuan’s central rate at 6.4010 to the dollar: slightly weaker than the previous night’s closing rate, and around 1.1 percent below Wednesday’s central rate.

“The good health of the Chinese economy will be especially important for the raw materials markets”, he said, adding that the recent drop in oil prices is partially due to concerns over Chinese growth slowing down.

However, the PBOC now appears to be moving to stem the slide and calm jittery markets.

On Thursday, PBOC Vice Gov. Yi Gang described as “nonsense” a report the central bank intends to engineer an eventual 10% depreciation of the currency in an effort to help exporters. Many see another global crisis on the horizon as these yuan moves have big implications for other Emerging Market currencies, economies, and their debt.

Fitch ratings agency said that the depreciation in the yuan “highlights wider pressures on the economy”, but also demonstrated that authorities remained committed to market-oriented reform, a commitment that many had questioned after Beijing’s heavy-handed interventions to stem a plunge in its stock markets in June.

The International Monetary Fund has praised China’s moves this week, with a spokesman calling the shift “a welcome step as it should allow market forces to have a greater role in determining the exchange rate”.

The People’s Bank of China set the yuan’s midpoint rate at 6.3975 per dollar prior to market open, firmer than the previous fix at 6.401.

An explosion in the Chinese city of Tianjin, also one of the world’s busiest ports, could add to volatility in China’s financial markets.

Beijing’s move could complicate the US Federal Reserve’s decision about when to raise interest rates that have been near zero since the 2008 global financial crisis.

WALL STREET: Major U.S. benchmarks finished flat with the Dow Jones industrial average down less than a point to close at 17,402.51.

In economic news, German inflation slowed as estimated to a 5-month low in July due to lower energy prices, final data from Destatis showed. “There is not a sense that the onshore yuan will weaken forever”. The Fed was expected to act later this year, possibly as early as next month.