China takes measures to keep the yuan from plummeting further, stabilizing markets after 2019's worst rout
Eugene Hoshiko/Getty; Reuters
Eugene Hoshiko/Getty; Reuters
- The People's Bank of China set the daily yuan fixing higher than analysts expected, raising the yuan per US dollar back above 7, a key level.
- China denied accusations that it manipulates its currency and said it won't let the yuan fall further to be competitive.
- Markets were poised to recover some losses from Monday's fall.
- Read more on Markets Insider.
China has stopped its currency, the yuan, from falling further after its weakness Monday led to a major market rout.
The People's Bank of China set the daily currency fixing for the yuan versus the US dollar back above the key psychological rate of 7 yuan-per-dollar - a stronger adjustment than analysts expected.
The PBOC also said that it does not manipulate its currency, and that it won't let the yuan fall further to be competitive. It also announced that it would sell yuan-denominated bonds in Hong Kong.
The yuan fix came after President Trump accused the country of manipulating its currency Monday after the yuan fell below the 7 per dollar level for the first time since 2008. The US Treasury Department followed suit by formally calling China a currency manipulator, the first time it has made such a claim since 1994.
The move to weaken the yuan was largely seen as a retaliation for Trump's threat of a 10% tariff on $300 billion worth of Chinese imports. A weaker yuan could help offset the extra tariffs on China by making it less valuable against the dollar - this is part of the reason that Trump has called for a weaker dollar in the past.
But an uncontrolled fall of the yuan could be a disaster for markets and the global economy. When the yuan fell Monday, markets fell, posting the worst US performance of 2019. Tuesday morning, markets were set to open on more steady ground after China announced the yuan fix - S&P 500 index futures rose 1%.
The currency struggle escalated trade tensions between the US and China, leading industry watchers to believe that chances for a resolution are waning.
"In our view, the latest US move, together with the unexpected US tariff hike on Chinese exports on August 1 could be seen as further evidence that the US administration may not really want to reach a trade deal soon and reduce China's incentive to make additional concessions," wrote UBS analyst Tao Wang in a Tuesday note. China also said that it would stop buying US agricultural products.
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