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Chinese Yuan Crashes As Coronavirus Intensifies, Markets Crater

February 3, 2020 at 15:44 by Andrew Moran

Many 100 CNY notesThe Chinese yuan is crashing to kick off the trading week, cratering against all major currency rivals. The yuan is taking a beating after the leading stock indexes plunged due to the Wuhan coronavirus intensifying in China. The death toll reached 361 and the total number of people infected with the virus surged to 17,328. Will the world’s second-largest economy be able to recover? The authorities are responding to the outbreak with monetary and fiscal tools.

On Sunday, the People’s Bank of China (PBoC) announced that it will inject $173 billion into the economy to support financial markets. Officials believe that this liquidity injection will offer enough cushion for equities. The PBoC pointed out that this is roughly $100 billion more than the same period a year ago. It is estimated that more than $150 billion in reverse repos will mature on Monday, which suggests there will be approximately $50 billion in net cash.

The central bank aims to introduce as many as 30 additional stimulus measures over the next several days to offset any significant consequences in the national economy.

Regulators are encouraging financial institutions to maintain local quarantine regulations, such as limiting large gatherings of employees. This would consist of allowing employees to work from home or rotating shifts. The PBoC is also requesting that banks boost lending and refrain from calling in debts in areas that are impacted by the coronavirus.

Have these tools been enough to stabilize equities? Not yet.

After returning from the prolonged Lunar New Year holiday, Mainland China’s main share benchmark, the Shanghai Composite index, plummeted nearly 8%. The smaller-cap Shenzhen Composite fell almost 9%. But experts say that this was anticipated because traders are likely “playing catch up.”

In other Asian markets, the Japanese Nikkei slumped 1%, Korea’s Kospi was flat, and the Hang Sang Index declined 1.4%.

Meanwhile, the Chinese government is accusing the US of spreading “fear” in response to the coronavirus and not offering “any substantial assistance.” Foreign ministry spokeswoman Hua Chunying believes Washington is serving as “a bad example.” However, it had been reported that President Donald Trump and President Xi Jinping are communicating and working together to combat the outbreak.

American stock markets rebounded on Monday after suffering their worst day since August. The Dow Jones soared as high as 350 points, taking back more than half of Friday’s 600-point thrashing.

On the data front, December industrial profits tumbled 3.3%, down from the 2.1% decline in November. The Caixin manufacturing purchasing managers’ index (PMI) dipped from 51.5 in December to 51.1 in January.

The USD/CNY currency pair dropped 1.19% to 7.0190, from an opening of 6.9367, at 14:33 GMT on Monday. The EUR/CNY sunk 1.43% to 7.7570, from an opening of 7.6474.

If you have any questions, comments, or opinions regarding the Chinese Yuan, feel free to post them using the commentary form below.

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