The Chinese devaluation of the yuan on Aug. 11 from 6.20 to 6.45 was a game changer for currency markets and creates critical challenges to the forex trader. Let's explore its effect. The devaluation is a departure from the relatively stable range regime keeping the yuan near 6.20 and within a 2% band to a 4% weakening in two days. The Peoples Bank of China (PBOC) bought yuan on the third day to attempt to restore confidence in the stability of the currency. The idea of a market-based valuation of the yuan was undermined by the PBoC intervention. This "managed" devaluation disrupted the old order where a relatively fixed yuan/dollar rate was the enduring environment and introduced long-term uncertainty to future PBOC moves.
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