China further weakens yuan amid economic slowdown fears

The central bank set its daily reference rate for the yuan 1.1 percent lower than the previous day at 6.4010 per U.S. dollar. The People's Bank of China shocked global financial markets on Tuesday by unexpectedly lowering the so-called midpoint of the yuan by nearly 2 percent, the biggest drop since 1994. On Wednesday, the bank, which has introduced a new methodology to determine the yuan's fixing, lowered the rate by 1.6 percent and the currency weakened at one point to 6.4510 per dollar, its weakest level since August 2011, during Shanghai trading before closing at 6.3870. China strictly controls trading of the yuan and restricts the currency to move in a band 2 percent above or below a midpoint rate it fixes every morning. Until the new policy was implemented, it was often the case that China's yuan reference rate against the dollar did not change more than 0.1 percent from that of the previous day. The central bank has said the decision to let the yuan depreciate against the dollar is a "one-time" adjustment and is part of China's efforts to make movements of the currency more market-driven. Seeing that the value of the yuan was too strong against major currencies, the bank decided to set the reference rate based more on the previous day's closing rate of the currency. Despite the stated purpose, however, the devaluation is widely interpreted as China trying to make its exports less expensive and bolstering their overseas competitiveness, amid a slowdown in the economy. Source: Kyodo