TOKYO (Reuters) – The Chinese yuan slipped to one-year lows on Friday, unnerving investors on Asian stock markets and fueled concern Beijing's currency management could become the next high point in a fierce trade dispute with the United States.
A man looks at an electronic board with stock market information in a brokerage house in Shanghai, China, July 6, 201
Spreadbetters expects European equities to fall lower as volatility captures Asia, with the British FTSE drops 0.1% and the German DAX and the French CAC both lost 0.25%.
The yuan fell to just 6.8128 dollars in the onshore market before large Chinese state-owned banks sold dollars, apparently in an offer from the authorities to prevent a rapid decline in the currency's currency.
Most stock markets in the region were shaken by the continued decline of the yuan. MSCI's broadest index for Asia-Pacific equities outside Japan has recently risen 0.1 percent in volatile trading.
"There are several channels through which the weakening of the yuan hits Asian stocks: First, a weaker yuan puts the competitiveness of other Asian economies in doubt," said Shusuke Yamada, currency and equity strategist at Bank of America Merrill Lynch in Tokyo ,
"The weaker currency is also causing fears of capital leaving China and disrupting its capital markets, which could affect Asia, as a weaker yuan exacerbates trade fears."
The yuan had retreated to $ 6,740 from the dollar, after initially falling to the low of 6.8128. The currency suffered a setback the day before after the Chinese central bank lowered its yuan average on the seventh trading day.
Traders said that the sale of dollars was not huge and apparently aimed at controlling the pace of the devaluation of the yuan, which has been devastated in recent weeks by the heated Sino-US trade dispute.
Global markets are sensitive to any violent movements in the yuan.
China's unexpected devaluation of the yuan in 2015 and the subsequent sharp sell-off of the currency led to turbulence in global financial markets as investors worried about the stability of the world's second-largest economy.
"Investors do not know how far the yuan could fall," said Ken Cheung, Asia's senior FX strategist at Mizuho Bank in Hong Kong.
"(The authorities) may want to keep economic growth steady, and the direct impact of a weaker yuan could offset some of the negative effects of the trade war, but it will be difficult to maintain the confidence of foreign investors in the purchase of yuan-denominated assets. "
Asian stock markets were already nervous after Wall Street stocks fell overnight in the wake of recent trading tensions, the Dow lost 0.53 percent of the S & P 500 lost 0.39 percent. [.N]
Japan's Nikkei lost 0.8 percent, while Hong Kong's Hang Seng lost 0.55 percent. In China, the Shanghai Composite Index fell 0.12 percent.
Concerns about a full-fledged global trade war are likely to persist as EU Trade Commission officials are due to travel to Washington next week for a list of "tit-for-tat" actions in response to proposed US Rates for EU cars.
In currencies, the dollar was on the defensive following criticism from US President Donald Trump on Federal Reserve policy.
On Thursday, Trump criticized Fed policy and expressed concern about the potential impact of rising interest rates and a stronger dollar on the US economy and the competitiveness of American companies.
The dollar index against a basket of six major currencies was 0.1 percent lower at 95.071, after being capped at 95.652, its highest level since July 2017.
The dollar had reached that high after the chairman of the Federal Reserve, Jerome Powell, had expressed his confidence in the US economy and reiterated expectations that the central bank was on course to gradually raise interest rates.
The Euro added 0.15 percent to 1.1661, offset by a three-week low of $ 1.1575 set overnight. The single currency has lost about 0.3 percent this week.
The greenback lost 0.2 percent to 112,280 yen. It was knocked off a year high of 113.18 on Thursday.
The Brent crude futures rose 0.2 percent to $ 72.71 a barrel and maintained their gains this week, after the Saudi OPEC governor said that exports of the kingdom are likely next month fall.
Reporting by Shinichi Saoshiro; Additional coverage by Hideyuki Sano in Tokyo and Winni Zhou, Andrew Galbraith in Shanghai; Edited by Sam Holmes & Shri Navaratnam