Yuan tumbles, testing 7 per US dollar level after hawkish Fed statement
Chinese yuan tumbled in the onshore market on Thursday after the US Federal Reserve raised the interest rate overnight and made a more hawkish statement than expected by foreshadowing more interest rates hikes in 2017.
Onshore yuan traded in Shanghai opened nearly 300 basis points, or 0.43 per cent, lower at 6.9350 per US dollar and hit an intraday low of 6.9366 against the greenback at one point, a fresh new low in over eight years. It was quoted at 6.9335 per US dollar in evening trading on Thursday, 0.41 per cent lower than the previous day’s closing price.
Offshore yuan traded in Hong Kong hit an intraday low of 6.9505 against the US dollar before rebounding to 6.9320 in the evening session, 0.04 per cent stronger than the previous closing price.
The People’s Bank of China slashed the yuan’s reference rate by 261 basis points to 6.9289 per US dollar on Thursday, refreshing the weakest point since June 2008. Traders are allowed to trade 2 per cent either side of the reference rate.
There is a chance that the yuan breaks the level of 7 against the US dollar in the first half of next year
The yuan weakness comes as the US dollar index, a gauge of the strength of the greenback, surged over 1 per cent after the Fed’s statement, breaking the critical psychological level of 102.
The Federal Reserve increased its key interest rate by 0.25 per cent overnight, the first rate hike in a year and the second one in a decade. Meanwhile, Fed officials raised their target for short-term interest rates by 0.25 percentage points to a range of 0.50 per cent and 0.75 per cent.
