THE yuan weakened to the lowest in five and a half years against the US dollar yesterday after the central bank eased the guidance rate amid global and domestic economic uncertainties.
The yuan closed at 6.69 per US dollar at 4:30pm after going above 6.70, the weakest since late 2010.
The spot rate fell from Tuesday’s 6.6695 after the People’s Bank of China yesterday lowered the central parity rate by 0.4 percent from Tuesday to 6.6857, the weakest since November 2010.
The yuan can trade within 2 percent on each side of the reference rate.
The weaker yuan was in line with the pound’s tumble to a 31-year low against the US dollar on fears of financial and economic instability from Britain’s decision to leave the European Union.
The PBOC tolerates a greater decline of the yuan in line with the trend of US dollar strengthening as it wants to keep the yuan relatively stable against a basket of currencies, according to analysts, adding that the sluggish outlook of the Chinese economy is also weighing on the yuan’s exchange rate.
“Nearly all emerging market currencies have been weakening since Britain decided to leave the European Union, and the yuan cannot avoid the impact,” foreign exchange broker FXTM said in a note.
“Market sentiment for the yuan will continue to weaken in the second half as risk aversion prevails. The market is also worried that the close link between the Chinese and British governments will be hurt by the Brexit decision.”
Zhu Haibin, chief China economist of JPMorgan, said China’s economic growth may slow to 6.3 percent annually in the fourth quarter from 6.7 percent in the first quarter. The US investment bank maintained its forecast for the yuan’s exchange rate at 6.75 against the US dollar at year’s end.