The Yuan’s Slide Is Too Big for Beijing to Stop. Concern about emerging market currencies similar to before the Asian financial crisis a quarter-century ago.

via Bloomberg:

While the Chinese state plays a role in steering the currency, economic trends are far more important. No wonder pessimism is ruling the day.

China’s economy is faltering and so is its currency. The yuan’s drop to a two-year low has led to hand-wringing that emerging markets have lost an anchor. The slide is regarded with foreboding in Asia and trepidation as far away as Africa and Latin America, where China has sought to extend its commercial footprint. Bears are everywhere. That it has taken so long for alarm bells to ring says a lot about how the world grew accustomed to a China that for decades just powered along, even with a speed bump here or there.

The yuan declined for a sixth consecutive month in August. It’s down about 8% against the dollar this year and one of the worst performers in Asia this quarter. Sentiment is negative, according to Bloomberg’s MLIV Pulse survey conducted between Aug. 29 and Sept. 2. More than 60% of readers on the terminal and online predicted that the currency will weaken to 7.2 per greenback; it was 6.9 on Friday. Analysts are lining up to call the yuan lower. The depreciation is likely to weigh on the yen, Korean won, Thai baht and Malaysian ringgit, already hammered by aggressive hikes in US interest rates.

China Is Taking More Visible Measures to Slow Currency’s Descent

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  • PBOC sets fixing weaker than 6.90 for first time in two years
  • More policy moves expected if yuan depreciation reaccelerates

via Bloomberg:

China set a stronger-than-expected exchange-rate fixing for a 10th straight day and said it will allow banks to hold less foreign currencies in reserve, its most substantial moves yet to stabilize a weakening yuan.

The People’s Bank of China set the yuan’s reference rate at 6.9096 per dollar on Tuesday, trailing behind the currency’s move to a two-year low. That came a day after the central bank said financial institutions will need to hold just 6% of their foreign exchange in reserve from Sept. 15, effectively increasing the supply of dollars and other currencies onshore. The decrease of 2 percentage points is the biggest in data going back to 2004.

h/t mark000


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