China attempts to quell currency fears

The People's Bank of China (PBoC) attempted to quell fears surrounding the country's currency on Thursday (August 13th), as the yuan fell for the third consecutive day.

In an effort to soothe global markets, the central bank said there was basis for further depreciation in the currency due to strong economic fundamentals.

It claimed that China's robust economic environment, sustained trade surplus, healthy fiscal position and deep foreign exchange reserves will bolster the yuan's exchange rate.

The PBoC announced its decision to devalue the currency earlier this week, lowering its official guidance rate by two per cent. This declaration sent shockwaves through the market and sparked fears among traders about a potential currency war.

Politicians from the US accused the Chinese government of devaluing the yuan in order to unfairly support the country's exporters. However, the central bank's vice-governor, Yi Gang, dismissed these claims as being "groundless".

If the PBoC is able to provide support for the yuan, weak economic data for July and predictions of more interest rate cuts to come will likely add to investor concerns about the currency slipping even further.