This morning’s Wall Street Journal features a report about China’s central bank guiding the yuan to its weakest level since August 2011.
The bank set the yuan at 6.414 to the U.S. dollar today, following the market’s lead.
Beijing under pressure
The WSJ states that Beijing is under investor pressure to deliver on its pledge of a more market-driven yuan, without a repeat of “mistakes like its market-roiling summer devaluation.”
Expert opinion in the story supports the notion that China’s devaluation was inevitable. One source says,“What has happened in the past few days shows a clear intention from the authorities that they would like to see an orderly and mild depreciation of the yuan,” said the head of trading at a Guangzhou-based, state-run bank. “Everything, ranging from the dismal trade data to the prospect of a Fed rate increase, calls for a weaker yuan. If you ask 10 traders in China, nine will tell you that they expect the currency to depreciate in the near term.”
How a weaker yuan can work for you
The new low setting for the yuan did not immediately trigger selling in yuan traded onshore (which fell as much as 0.14%), and offshore-traded yuan, which already lost 0.6% of its value over the past three days, was down another 0.04%.
As currency traders, we take news like this in stride and start planning the best strategies for investing based on a weakening yuan (and a strengthening U.S. dollar). The effect that the yuan’s evaluation will have on the currencies of China’s trading partners will also need to be analyzed, and we will report on all of these factors in our free Forex webinars as news continues to come in.
Just use the form below to attend one of our upcoming free Forex webinars, where you’ll find out how market movements like this one could mean more money in your personal account.