Asian and European stocks fall 'due to China's currency devaluation'

The decision made by the People's Bank of China to devalue the yuan by two per cent on Tuesday (August 11th) unnerved the market, leading to a fall in Asian and European stocks.

On the back of the central bank's decision, the US dollar was boosted, raising concerns among investors about the prospect of a fresh round of currency wars. 

There is widespread worry across the market about what implications will be attached to the devaluation of the yuan, which aims to support China's lacklustre economy and boost exports.

Weaker stocks boosted top-rated bonds, while yields for eurozone debt were pushed lower down due to a multi-billion euro bailout deal being reached with Greece and its creditors just nine days before it needs to pay back €3.2 billion to the European Central Bank. 

According to the People's Bank of China, the decision to devalue the yuan is a "one-off depreciation" that has been designed to manage the exchange rate in a way that better reflects market forces. However, the market has reacted negatively, with the currency driven down to its lowest point against the dollar for almost three years.

The Australian dollar, which is often used as a liquid proxy for the Chinese currency, dropped 0.9 per cent on Tuesday to $0.7346, as its US counterpart added 0.4 per cent against a basket of its major peers, before trimming its gains. 

Elsewhere in the world, the Singapore dollar plummeted to a five-year low, while the Malaysian ringgit and Indonesian rupiah sunk to a nadir not seen since the Asian financial crisis 17 years ago. 

The Japanese yen slumped to a two-month low of 125.08 against the US dollar. The euro enjoyed a boost from the Greek debt deal, climbing 0.2 per cent to $1.1040.