SHANGHAI – The Chinese yuan weakened to a decade low on Tuesday on concernsover China’s slowing economy and the US trade war, but Beijing was expectedto prevent it breaking the psychologically important 7 yuan per dollarbarrier.
The yuan drifted past 6.96 to the dollar, hitting its weakest levels sinceMay 2008.
Breaking 7 could further undermine market confidence and potentiallytrigger fresh US accusations that China was allowing the yuan to weaken toblunt the impact of tariffs that Washington has imposed on Chinese goods.
A weaker yuan makes Chinese exports less expensive overseas, amelioratingsome of the higher costs brought by the tariffs.
China restricts the yuan’s daily trading band, and a front-page commentaryon Tuesday in the state-run Economy Information Daily said authorities wereunlikely to let it hit 7 to the dollar.
“China’s balance of payments situation won’t change in the short term.Current monetary officials have the strength and determination to stabilisethe market. There also are enough policy tools to deal with changes in thesituation,” it said.
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Washington has imposed tariffs on billions of dollars worth of Chinesegoods as President Donald Trump tries to pressure Beijing to change tradepolicies that he says are unfair to US companies.
The yuan is likely to remain weak as long as the trade row persists, BenKwong, executive director at KGI Asia, told Bloomberg News.
“Chinese officials have already indicated they don’t want the yuan to breakthrough 7 this year. The yuan may fall very close to 7 but maybe not beyondthat,” he said.
Washington recently declined to officially label China a currencymanipulator — a designation that would have further escalated the tradefight — but expressed concern over the yuan’s weakness and Beijing’sforeign exchange policies.
