Enormous US dollar gains prompt surprise yuan devaluation by PBoC

A sudden Chinese yuan devaluation triggered sell-off in risky assets across markets today. PBOC sets USD/CNY at 6.6375 vs 6.5776, which translates into the weaker fix (-0.9%), lowest since the August 2015 devaluation of the Yuan. The People’s Bank of China has set the midpoint at the lowest level since December 2010 in the first trading session since Brexit.

PBOC Governor Zhou Xiaochuan said on Friday that a more flexible yuan currency is important for China's development and reforms and monetary policy will be adjusted "in a dynamic way" to meet those goals. The weakening of the midpoint comes as the dollar index tracking the US currency against a basket of currencies has weakened by 0.93 per cent.

In August last year, the PBoC devalued the renminbi against the dollar, sending global markets into a tailspin. With investor sentiment already frayed after UK's vote to leave the EU, the PBoC move could add to market jitters.

The sharp weakening of its midpoint today is largely in line with market expectations and shows that the PBOC has become more accommodative of the yuan's two-way volatility of late. Spot yuan opened at 6.6360 per dollar and was changing hands at 6.6464 at midday, softening 0.3 percent from the previous close.