Yet those gains would come at the expense of manufacturers in other countries, including the United States and Europe.
“It’s not that China is trying to intentionally lower the yuan long-term”. Some members of Congress have backed legislation to impose retaliatory tariffs.
China’s surprise devaluation of its currency this week triggered fears about waning competitiveness of Asia’s exporters and cast fresh doubt on the health of the Chinese economy. Initiatives by Japan and the European Union over the past two years depressed the yen and euro. He expects the People’s Bank to lower the reserve-requirement ratio, which determines how much cash lenders must park at the central bank for risk control, by the end of this quarter.
Investors will look to U.S. inflation data and minutes of last month’s Federal Reserve monetary policy meeting on Wednesday, as they seek for further clues as to when the Fed will begin raising interest rates.
Mr Lo argued that Beijing will resist further devaluation because it would not significantly help the country’s export sector. Because of the rising value of the dollar, American industrial companies have lost a huge percentage of the export pie.
The finance sub-index fell 1.4 per cent.
PBoC’s devaluation even if removes some of the pressure on Yuan it is unlikely to reverse the course of outflow of money from Chinese economy and probability stands high that it will get worse from here if devaluation spiral sets in.
“European equity markets are taking their cues from China, and traders’ suspicion is that the second largest economy in the world is heading for a hard landing, ” said David Madden, market commentator at IG in London. This will increase volatility in the currency, compared with the prior system, however the yuan will still remain pegged to the Dollars and allowed to fluctuate only within 2% of the daily fix.
A weaker yuan might prompt complaints by foreign manufacturers.
“The central bank will frequently intervene in the foreign-exchange market in the next three months as it needs to ensure the currency is stable“, said Ken Peng, a strategist at Citigroup in Hong Kong, the world’s biggest currency trader.
Zhang added that the value of the yuan has gradually returned to market levels, as the discrepancy between the central parity rate and the actual trading rate has been corrected, after declines in the past few days.
That also meant that the movement of yuan and other Asian currencies would be more volatile ahead. Until recently, the Bank would ignore the previous day’s trading when setting the new day’s price fix.
Earlier on Thursday, the PBOC said there was no basis for continued depreciation of the yuan. Each day, the People’s Bank of China sets a target for the yuan, then lets the currency trade 2 percent above or below that level.