China’s yuan sunk to a new 11 and a half-year low, reaching its worst month on record, following fears that the economy is suffering from an intensifying US-China trade war.

For the first time since 2008, the yuan hit 7.18 to the dollar in the onshore market, damaging investor confidence even further.

During August, the yuan dived 3.9% – the largest loss since the modern exchange rate was introduced back in 1994. This drop in the currency comes after the rivalling countries both confirmed they would impose new tit-for-tat tariffs in September.

China is imposing duties between 5% and 10% on more than 5,000 US products, which then resulted in the US raising its tariffs on various Chinese goods from 25% to 30%. 

There has been no clear indication as to whether the situation is likely to improve and fears of a slowing economy and sustained weakness may lead to financial instability as the currency continues to weaken. 

As of 11:55am in Shanghai, the yuan fell 0.14% to 7.1621 a dollar. Its 14-day considerate strength against the dollar fell below 30, while the dollar has dropped below this level for 14 days during August, which is the highest seen in a month since May.

Yuan’s decline has hit a record low against a basket of its trading partners. 

To arrest the depreciating value of the yuan, Beijing may decide to issue verbal warnings against large-scale shorting or intervene more directly by selling US dollar reserves.

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Dalia Hilmi

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