China lets yuan break key 7 level for first time in decade as trade war worsens

SHANGHAI: China let the yuan breach the key 7-per-dollar level on Monday for the first time in more than a decade, in a sign Beijing might be willing to tolerate more currency weakness that could further inflame a trade conflict with the United States.
The sharp 1.4 per cent drop in the yuan comes days after US President Donald Trump stunned financial markets by vowing to impose 10 per cent tariffs on the remaining $300 billion of Chinese imports from September 1, abruptly breaking a brief ceasefire in a bruising trade war that has disrupted global supply chains and slowed growth.
Some analysts said the yuan move could unleash a dangerous new front in the trade hostilities — a currency war.
The People’s Bank of China (PBoC) provided the early impetus for yuan bears by setting a daily rate for the currency at its weakest level in eight months.
Capital Economics Senior China Economist Julian Evans-Pritchard said the PBoC had probably been holding back against allowing a weaker yuan to avoid derailing trade negotiations with the United States.
“The fact that they have now stopped defending 7.00 against the dollar suggests that they have all but abandoned hopes for a trade deal with the US,” he said.
The PBoC gave few clues about its intentions. In a statement on Monday, the central bank linked the yuan’s weakness to the fallout from the trade war, but said it would not change its currency policy and that two-way fluctuations in the yuan’s value are normal. “Under the influence of factors including unilateralism, protectionist trade measures, and expectations of tariffs against China, the yuan has depreciated against the dollar today, breaking through 7 yuan per dollar,” the PBoC said. — Reuters