China: ‘Trouble’ in foreign exchange markets since Wan’s biggest fall in the last two months

The sliding of Chinese and with him and other Asian coins caused its hesitant relaxation by the suffocating pressure that Wan holds, according to Bloomberg’s report. The inland wan has noted the biggest drop in over two months, after authorities determined a weaker than expected daily rate, fueling the speculation that further losses would be tolerated. The fall brought China’s currency at 0.2% from the end of its permitted daily trading zone plus or minus 2% from the rate set. The relaxation of Beijing’s stance highlights the challenges faced by policy makers, as they try to stimulate a fragile economy through monetary relaxation while maintaining the Wan generally stable to prevent capital outflows. However, according to Bloomberg’s report, a decision to relax would not be simple, as the People’s Bank of China should retain some support to ensure that depreciation is smooth and does not jeopardise financial stability. Wan’s new weakness, having remained largely stagnant for almost two months, has implications beyond China’s foreign exchange market. A sudden or continuous slip can burden its regional counterparts who are already under pressure from the heavily rising dollar. It would also make the country’s problematic stock market even less attractive to foreign investors.