The Chinese Yuan has been let loose in a band of 2 percent.Yesterday it went towards the lower boundary and now it is going the other way. This volatility is now going to be a regular feature and will effect all the surrounding markets.
It hit a one-year low on Thursday with the People's Bank of China (PBOC) seemingly content with the decline. The currency has fallen more than 1.2 per cent so far this week, which would be the largest weekly loss since 1992.
In early trade Friday the currency was steady at 6.2275 per dollar but has had a habit of taking sudden downward movements this week.
Government economists and advisers involved in internal policy discussions said, the central bank chose to widen the yuan's trading band since it was less risky than other reform options while also offering a way to hedge against further economic slowdown.
A weaker yuan would provide some relief to struggling exporters and the PBOC has the means to steer it lower while avoiding sharp swings.The question now is how far will they let it fall.
A major drop in the yuan could put pressure on other nations in the region to depreciate their currencies and keep their exports competitive.
Several currencies from the Thai baht to Malaysian ringgit have indeed turned lower over the last couple of days and dealers are watching nervously to see if that could be the start of a trend.