On Tuesday, global stock market bounced back, after witnessing the worst trading day of the year on Monday, as People’s Bank of China fixed yuan at a higher rate than expected. In response to US President Donald Trump’s recent announcement of new tariffs on remaining Chinese goods, Beijing depreciated its currency below 7 against US dollar on Monday. But Tuesday saw yuan stable and fixed at slightly over 7, which is bare minimum but enough to bring the dying markets back to life.
Stabilising of yuan is seen as an attempt by Beijing to de-escalate the ongoing trade war between the world’s mightiest economies.
Monday’s devaluation move not only intensified the trade war between the nations but also made investors jittery leading to major capital outflow. On Monday stocks suffered major sell-off, among the worst hit being Wall Street, European, and Hong Kong stock market.
US treasury department severely criticised the move, officially labelling China a ‘currency manipulator’. It was believed that China pulled the value of its currency down to keep its exports unaffected amid the increasing US tariff, US being its biggest importer.
China justified the depreciation move as a response to “trade protectionism and new tariffs on China” by Trump administration.
On Monday night, Yi Gang, governor of the Chinese central bank, said in a statement that China would “not engage in competitive devaluation, and not use the exchange rate for competitive purposes and not use the exchange rate as a tool to deal with external disturbances such as trade disputes.”
Since Tuesday, markets seem to be bit relaxed as US equities and European stocks opened at a higher level and so did Asian shares after bearing few initial losses.
Edward Moya, an analyst at OANDA said that China controlling further drop in its currency cab be seen as ‘a sign that we might not just yet see the peak escalation in the US-China trade war’. Though ‘continued yuan depreciation should be expected, albeit at a staggered pace’.