The People’s Bank of China set the yuan midpoint at 6.9996 per dollar early on Wednesday after the Chinese currency sunk below the 7 per dollar mark earlier this week for the first time since 2008, sending global markets into a tailspin and prompting U.S. President Donald Trump to accuse China of currency manipulation.
The Australian Dollar fell sharply on the news to reach a new 10-year low price against the U.S. Dollar at 0.6677, while precious metals rose strongly with Gold reaching a new 6-year high price at $1490 per ounce.
According to reports from CNBC, some analysts believe the yuan could sink as much as 40 percent if the state did not provide support to its currency.
The trade war between the U.S. and China, dragging on for over a year now, and the strain has been weakening the yuan over the past few months. Last week, President Trump announced his intention to implement new tariffs on Chinese goods starting on September 1, fueling rumors that the recent trade negotiations are crumbling and increasing speculation that an end to the trade war will not be imminent.
Asian benchmarks were trading mixed on Wednesday morning after seeing steep losses on Tuesday. The Shanghai Composite and the Shenzhen Composite both inched higher during early trade, gaining 0.13 percent and 0.39 percent respectively. Australia’s ASX 200 was also modestly higher, trading up 0.05 percent. On the downside, Japan’s Nikkei 225 eased 0.58 percent, Hong Kong’s Hang Seng Index was down 0.22 percent, and South Korea’s Kospi was 0.06 percent lower. Wall Street benchmarks all ended higher on Tuesday, defying predictions for steep losses once it became clear that the PBOC would secure the yuan.
Currency Markets Remain Fragile
The dollar index eased on Wednesday morning, falling 0.14 percent to 97.49 .DXY. The greenback was down 0.30 percent against the yen to trade at 106.12. The pair hit a seven-month low of 105.52 on Tuesday. The euro also gained against the dollar, up 0.09 percent to $1.1209, while the pound gained 0.10 percent to $1.2178.