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The
bank described the move as a "one-off depreciation" and billed
it as free-market reform but, after a run of weak Chinese data,
with exports tumbling over 8 percent in July, economists said
the timing suggested it was aimed at boosting the
competitiveness of the world's second-biggest economy.
The currencies of some of countries that do much of their trade
with China, such as the Australian <AUD=D4> and New Zealand <NZD=D4>
dollars, were also dragged down by the move, shedding as much as
1.3 percent at 1 percent respectively against their U.S.
counterpart. The Japanese yen hit a two-month low <JPY=>.
"What's interesting about today's move? It's not the scale of
it," said Simon Derrick, head of currency research at BNY Mellon
in London. "Yes, we've gone back to where we were in September
2012 ... but the dollar index is up 22 percent since then, so
it's a drop in the ocean in those terms.
"It does look, however modest, like an attempt to recoup just a
small amount of competitive edge it's lost in international
markets ... What happens over the next few days matters. If we
have a currency that moves much more freely, fine. If, however,
we go back and it's just repegged ... that is currency war."
The yuan midpoint was set at 6.2298 per U.S. dollar, compared
with the 6.1162 mid-point on Monday. The central bank said it
would now base the yuan's midpoint on market makers' quotes and
the previous day's closing price.
Spot yuan <CNY=CFXS> tumbled around 2 percent to as low as
6.3360, the weakest since September 2012 and the biggest drop
since the currency was officially devalued in 1994. The yuan had
been locked in an extremely narrow intraday range since March,
varying only 0.3 percent.
"With fears of an economic slowdown mounting, devaluing the yuan
was the only thing China had not tried after implementing
monetary, fiscal and equity-boosting policies," said Masafumi
Yamamoto, senior strategist at Monex in Tokyo.
"Devaluation of the yuan likely won't end here. Currencies like
the Singapore dollar, South Korean won and Taiwan dollar, which
stand to compete with China, are falling, and today's move could
generate headlines heralding the start of a devaluation war."
The euro edged higher, hitting an 11-day high of $1.1042 <EUR=>,
as Greece and its international lenders clinched a
multi-billion-euro bailout agreement after marathon talks
through the night.
The euro's relative strength saw the dollar edge down against a
basket of currencies <.DXY>. Against the yen, the greenback hit
125.08 <JPY=>, its strongest since the start of June.
(Additional reporting by Shinichi Saoshiro in Tokyo)
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