Yuan fall sparks global market rout

Our Bureau Mumbai | Updated on August 05, 2019 Published on August 05, 2019

Yuan slumps past 7 per dollar for first time in over decade as trade war between China and US escalates.   -  Reuters

China on Monday could have sparked a currency war to retaliate against US trade tariffs. This caused a global stock market rout. Chinese currency yuan, the price movement of which is highly controlled by the People’s Bank of China (PBOC), was allowed to fall below the psychological level of 7 against the US dollar for the first time since the 2008 financial crisis. Even though PBOC said it intended to keep the currency stable, not many in the markets believed it and started selling stocks.

An indication in the morning trade that US markets would open sharply lower, saw India’s benchmark indices Sensex and Nifty touch new lows not seen for more than a year.

The Nifty fell 134 points or 1.23 per cent to close at 10,862, touching an intra-day low of 10,782. The Sensex was down 418 points or 1.13 per cent to close at 36,699.

US President Donald Trump was quick to label China a ‘currency manipulator’ in his tweets. In the US, the Dow Jones index, Nasdaq and S&P 500 were trading lower between 2 per cent and 3 per cent a few minutes after opening at 7 pm India time.

Safe havens — gold and silver — appreciated sharply to hit new multi-year high levels. Traders in the market were keeping an eye on India moving a Bill for revoking Article 370 in J&K but that may not have far reaching impact in the immediate future for the markets, brokers said.

“Markets would just watch the commentary from the US and China on the trade war and keep an eye on the yuan price movement. If the yuan breaks further on the lower side, it could spark greater unwinding in stocks,” a market analyst in Mumbai said.

Published on August 05, 2019
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