FXStreet (Edinburgh) – Arne Rasmussen, Chief Analyst at Danske Bank, believes the Chinese currency could lose further ground in the upcoming periods.
Key Quotes
“Yesterday, when the People’s Bank of China (PBoC) devalued the yuan, it was said to be a once-off adjustment”.
“However, the promise did not last more than 24 hours and overnight last night the reference rate was lowered by another 1.6% following the 1.9% cut the day before”.
“The further devaluation has sparked market fears that this is the start of a more prolonged weakening yuan trend and that the Chinese economy might be weaker than previously thought”.
“It also underlines that the Chinese authorities are now actively using the currency to prop up the economy”.
“The problem for China is that the market is also selling off other Asian currencies so the effect from a competiveness point of view is in fact modest”.
“Both the Korean won and Malaysian ringit have been under pressure overnight and Vietnam has widened its trading band”.
“The question now is whether we will see an acceleration of capital flows out of China, which could in fact question the stability of the Chinese financial system”.
(Market News Provided by FXstreet)