Yuan weakens in warning to investors

Having strengthened yesterday, the renminbi has opened sharply down against the dollar – indeed by the largest weakening since December 2008.

Market talk suggests Chinese state-owned banks bought dollars to save the central bank from having to intervene. If the currency is seen as a one-way bet, ‘hot money’ will likely flow into China – potentially interrupting monetary policy transmission and causing inflation.

The People’s Bank of China has slightly increased the midpoint reference rate, from 6.7967 to 6.7980, indicating modest strengthening will be allowed in the coming week.