China Central Bank Says Yuan Should not Fall Further

China’s central bank said on Thursday there was no reason for the yuan to fall further given the country’s strong economic fundamentals, helping to restore calm to jittery global markets after it devalued the currency earlier in the week.

As the yuan slid for a third straight day, the People’s Bank of China (PBOC) said the strong economic environment, sustained trade surplus, sound fiscal position and deep foreign exchange reserves provided “strong support” for the exchange rate CNY=CFXS.

China’s decision to devalue the currency on Tuesday by pushing its official guidance rate down 2 percent sparked fears of a “currency war” and roiled global financial markets, dragging other Asian currencies to multi-year lows.

It also drew accusations from U.S. politicians that Beijing was unfairly supporting its exporters.

The PBOC said at the time that the move was a one-off depreciation, but sources involved in the Chinese policy-making process told Reuters that some powerful voices within government were pushing for the yuan to go still lower, suggesting pressure for an overall devaluation of almost 10 percent.

PBOC Vice-governor Yi Gang said it was nonsense to believe that government expected the yuan to fall that far.

via Reuters

Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza