China’s currency is heading for its steepest weekly drop since January, when a series of weaker fixings roiled global financial markets, as Donald Trump’s election victory boosted the dollar and raised the threat of a more protectionist America. Bonds tumbled.
The yuan fell 0.06 percent to 6.8134 at 10:07 a.m. in Shanghai, approaching the 6.83 level at which China pegged the currency after the 2008 global financial crisis. The exchange rate has fallen 0.9 percent this week to a six-year low as Trump’s unexpected win spurred a tectonic shift in fund flows, with emerging-market currencies tumbling with bonds while stocks rally. The 10-year yield on government debt climbed about 10 basis points this week, the most since May 2015.
Bloomberg’s dollar index held near an eight-month high amid speculation the Federal Reserve will boost interest rates to cap inflation as a Trump-led administration steps up spending. Trump has also threatened punitive tariffs on China’s imports. Accelerating declines in the yuan are a turnaround from the August-September period, when policy makers were suspected of propping up the currency before its entry into the IMF’s reserves basket.
“A rally in the dollar has driven the yuan weaker, and the PBOC won’t likely defend the currency at this point because the costs of intervention could be very high under such an environment,” said Irene Cheung, a foreign-exchange strategist at Australia & New Zealand Banking Group Ltd. in Singapore. “But if the depreciation accelerates in the coming weeks, there’s still a chance that China could take measures to stabilize the market.”
The People’s Bank of China set its yuan fixing 0.34 percent weaker. The Bloomberg Dollar Spot Index jumped 0.8 percent on Thursday, while Treasuries led a global selloff in sovereign debt amid speculation increased U.S. expenditure under Trump will widen the budget deficit and potentially stoke inflation.
China’s foreign-exchange reserves dropped last month by the most since January, while the country’s exports plunged 7.3 percent, adding pressure for further currency weakness. Trump vowed to impose tariffs of up to 45 percent on Chinese shipments to the US
The yuan rose for a third day against a basket of peers. Currencies including the Brazilian real, Japan’s yen and the euro have tumbled more than 2 percent against the dollar this week. The offshore yuan weakened 0.16 percent to 6.8411 per dollar on Friday.