China Guides Yuan Sharply Lower; Jolts Markets, Offshore Currency Plunge

China’s central bank guided the yuan lower on Thursday at the fastest pace since its shock devaluation in August, prompting a shuttering of mainland stocks and roiling markets elsewhere.

The People’s Bank of China (PBOC) set the yuan reference rate at 6.5646 against the dollar, down 0.51 percent from Wednesday’s fix, and the lowest mid-point since 2011. That represents the largest daily change in the fix since August 13, according to Reuters data. The yuan had finished at 6.5554 on Wednesday.

China’s central bank lets the yuan spot rate rise or fall a maximum of 2 percent against the dollar, relative to the official fixing rate.
The currency moves have revived a litany of concerns in financial markets, from the health of the Chinese economy that is growing at its slowest pace since the financial crisis to the impact of a weaker yuan on capital outflows, which have accelerated in recent months.

The more stocks fall on cues from a lower yuan, the more investors may be encouraged to yank funds out of China and park them overseas, in turn exerting further pressure on the yuan.

CNBC

Craig Erlam
Based in London, England, Craig Erlam joined OANDA in 2015 as a Market Analyst. With more than five years' experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while conducting macroeconomic commentary. He has been published by The Financial Times, Reuters, the BBC and The Telegraph, and he also appears regularly as a guest commentator on Bloomberg TV, CNBC, FOX Business and BNN. Craig holds a full membership to the Society of Technical Analysts and he is recognized as a Certified Financial Technician by the International Federation of Technical Analysts.