Sliding Yuan Hits World Markets

The Chinese yuan slid to its lowest in more than a year on Friday, further undermining global sentiment and stoking worries Beijing’s currency management could be the next flash point in a trade dispute with the US.

The yuan slid as low as 6.813 to the dollar in the onshore market after the central bank set a weaker fixing for the currency for the seventh straight session, forcing a volatile session in Asian stocks, Reuters reported.

After falling 0.4%, MSCI’s index of Asia-Pacific shares outside Japan ended the day 0.6% higher as the yuan rebounded. Market participants suspected state intervention to support the currency.

The drop in the yuan came a day after US President Donald Trump said he was concerned that the “Chinese currency was dropping like a rock” and the strong US dollar “puts us at a disadvantage”.

His comments knocked the dollar, forcing it off one-year highs against a basket of currencies But the yuan, hurt by concerns over the China-US trade war and a slowing Chinese economy, has shed 7.6% of its value against the dollar since the end of the first quarter of this year.

“A weaker Chinese yuan remains a source of risk for global currency markets—and the large dollar-yuan fixing higher by the central bank overnight requires some cautionary monitoring,” ING Bank told clients. Investors have vivid memories of China’s sudden devaluation of the yuan in 2015 and the subsequent turmoil in global financial markets as investors worried about the stability of the world’s second-largest economy.

European markets were not immune to the jitters. The pan-European STOXX index and Germany’s DAX—which is highly exposed to trade and China—fell 0.2% at the start of trading. MSCI’s all-country world index, which tracks shares in 47 countries, was up 0.2% on the day but was set to end the week flat.

In Asia on Friday, Japan’s Nikkei was down 0.3%, but Hong Kong’s Hang Seng gained 0.45% and the Shanghai Composite Index rose 2%.

The dollar index, which measures the US currency against a basket of peers, was down 0.1% on the day at 95.118.

Spot gold rose 0.1% to $1,222.85 an ounce.