The Chinese yuan plunged to a five-year low in offshore trading and the gap between it and its mainland counterpart widened sharply this morning, reflecting poorer growth expectations and further weakness in the currency amid an economic slowdown in stock markets.
The offshore yuan fell to 6.6915 against the greenback, the lowest rate of exchange since at least the last quarter of 2010 and a 2.1 % discount to the onshore yuan’s 6.5506 level. Markets generally expect the onshore yuan to continue depreciating against the dollar on the back of sluggish growth prospects, accelerating capital outflows and demand for overseas assets.
The latest trigger for the slump came after the People’s Bank of China (PBOC) set the onshore yuan midpoint rate at 6.5314 per dollar, the weakest fixing since 2011. The fix represented a 0.22 percent decline from the previous session, a faster pace than witnessed recently.
Looking ahead this slowdown and equity sell-off poses serious concerns over the Fed’s ability to increase rates 4 times this year.