China stuns financial markets by devaluing yuan for second day running | Business | The... - 0 views
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China stunned the world’s financial markets on Wednesday by devaluing its currency for a second consecutive day, triggering fears its economy is in worse shape than investors believed.
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The move sent fresh shockwaves through global markets, pushing shares sharply lower and sending commodity prices further into reverse as traders feared the move could also ignite a currency war that would destabilise the world economy.
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There were widespread losses on stock exchanges in Asia, and in Europe markets suffered falls of about 1%, with the FTSE 100 in London tumbling almost 2% at one stage before settling at 6571, down 1.4%.
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The Chinese authorities have acted after a string of poor economic figures showed that previous efforts to boost exports and growth against the headwind of an overvalued currency had failed.
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As part of the devaluation, the authorities said they would widen the criteria to include more market information, allowing the currency to rise or fall more rapidly than before. The central bank sought to reassure financial markets that it was not embarking on a steady depreciation.
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One financial analyst said the devaluation, which pushed the yuan to a four-year low, heralded a tidal wave of cheap goods from Asia as other south east Asian countries followed suit.
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Unlike the pound and other major currencies, the yuan’s value is determined each day by the People’s Bank based on movements the previous day.
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Albert Edwards, analyst at Societe Generale, said the yuan had become overvalued against the dollar in recent years and was unsustainably high relative to other major currencies.
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A spokesman said the downward movement of the currency was a result of a project to liberalise its management and not a deliberate attempt to drive down its value.
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Oil prices remained below $50 a barrel, down from more than $110 a barrel last summer when the slowdown in China first became apparent. The prices of key industrial and construction metals – nickel, copper and aluminium – hit six-year lows.