21 February 2019
People's Bank of China deputy governor Yi Gang dismissed talk of a deeper devaluation. Photo: Bloomberg
People's Bank of China deputy governor Yi Gang dismissed talk of a deeper devaluation. Photo: Bloomberg

Currency war fears ease after China pledge

Bond yields rose in major markets on Thursday after China’s central bank reassured investors there was no reason for its currency to keep falling.

Oil prices fell to six-year lows on supply glut concerns.

Despite the renewed calm in markets, the yuan weakened for a third day and some forecast further declines in the face of a weak economy, Reuters reported.

Yi Gang, vice governor of the People’s Bank of China, dismissed talk of a deeper devaluation.

“They’re taking the Chinese central bank at its word, but I’m still taking those comments with a pinch of salt,” said Hantec Markets analyst Richard Perry.

The PBOC set its guidance rate at 6.4010 per US dollar prior to the market opening, weaker than the previous fix of 6.3306.

The gap between the guidance rate and the traded spot market rate narrowed sharply as banking sources said the PBoC had stepped up intervention to stabilize prices. It was lately traded at 6.3982.

Traders remained cautious. Sources had told Reuters this week some powerful voices in the government were pushing for an even deeper yuan devaluation to help China’s struggling exporters.

Oil prices neared their nadir for 2015 after refinery outages and data showing inventory builds revived concerns about oversupply.

US crude CLc1 settled down US$1.07 at US$42.23 a barrel, after setting a session bottom at US$41.91, its lowest since March 2009 when the financial crisis was wreaking havoc on oil prices. Brent crude LCOc1 slipped 1.1 percent to US$49.13.

Investor fears of a currency war or substantial asset depreciation eased, but US equities were hit by weak energy prices, dragging shares of those companies lower.

US equities, which had rebounded from steep losses Wednesday, were mixed. The Dow Jones industrial average rose 5.74 points, or 0.03 percent, to 17,408.25, the S&P 500 fell 2.66 points, or 0.1 percent, to 2,083.39 and the Nasdaq Composite was down 10.83 points, or 0.2 percent, at 5,033.59.

The pan-European FTSEurofirst index of leading 300 blue chips rose 0.9 percent, while the MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.5 percent.

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