Yuan weakens amid uncertainty

Business | Reuters and Stella Zhai 8 Oct 2019

The yen gained slightly and the yuan slipped in early Asian trade yesterday on a media report that China wants the scope of this week's trade talks and any deal with the United States to be narrow.

The yuan weakened 0.23 percent to 7.1292 per US dollar as of last night after China's foreign exchange reserves fell to a seven-month low.

The Japanese yen, regarded as a safe haven by virtue of Japan's status as the world's biggest creditor, rose 0.06 percent to 106.88 per dollar as of last night.

The Chinese yuan will slip by year-end to deeper lows last hit against the US dollar during the 2008 global financial crisis as authorities nudge the partly managed currency down while the Sino-US trade war goes on, a Reuters poll showed.

With global uncertainties aplenty and the United States election year approaching, any resolution to the trade war at next week's talks will be hampered by signs of a weakened yuan, said Reuters.

To counter losses from the trade war and regain export competitiveness, the People's Bank of China has consistently set the yuan's mid-point rate above the key 7 per dollar rate, allowing it to fall about 2 percent after Washington labeled it a currency manipulator in August.

The currency closed at 7.15 on September 30, and is forecast to hover around the same rate by March 2020 and then appreciate to 7.16 per dollar by this time next year.

China's foreign exchange reserves fell by US$14.8 billion (HK$116.09 billion) in September to US$3.092 trillion, according to data from the country's foreign exchange regulator - worse than expected despite the yuan rebounding from its biggest monthly drop in 25 years in August amid a cooling domestic economy and rising Sino-US trade tensions.

The fall in September was due to fluctuations in foreign exchange rates and the price of assets, the foreign exchange regulator said in a statement after the data release. It is believed that some reserves have been used to support yuan.

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