FX.co ★ Yuan drops to new lows as China’s economy slows

The Chinese yuan seems to be losing ground against the US dollar. What initially appeared to be a minor daily dip has transformed into a prolonged 2-week decline with some rebounds on the way. The yuan has lost more than 5% against the US dollar so far this year, becoming the weakest-performing currency in Asia after the yen and the South Korean won. At the moment, the Chinese currency shows little sign of recovery. The renminbi continues to decline despite all government attempts to support it. In mid-August, the yuan dived deeper to 7.25 against the US dollar, only to plummet further to 7.30, surpassing its June low of 7.28. This weakening is also reflected in the Chinese stock market where the CSI 300 index is also trending downwards. Simultaneously, the yield on 10-year government bonds is approaching this year's low. The evident cause for the yuan's decline is the flagging Chinese economy. The nation's major economic indicators have fallen short of expectations. What is more, a plunge in loans to a 14-year low and a sharp decrease in consumer and producer prices also weigh on economic activity. In addition, China’s exports saw the biggest drop since February 2020 which is a serious headwind for the economy. The gravity of the situation might soon demand intervention from the People's Bank of China. The regulator is expected to step in and implement additional measures in the near future to slow down the yuan's decline.