China's yuan tumbles to a 3-month low, as its economy struggles and the dollar surges

• China's yuan dropped to a three-month low on Friday, falling past the key 6.8 level.
• Investors have flocked to the dollar, while China's economy is coming under major pressure.

China's currency dropped Friday to its lowest level in three months, reflecting the strength of the US dollar and worries about mounting risks to the Asian powerhouse's economy.

The onshore yuan, which trades within limits set by China's central bank, fell to just shy of 6.815 yuan to the dollar, according to Bloomberg data. The Chinese currency hasn't traded that low since May, and it was down 0.29% to 6.086 at last check.

The fall came after the People's Bank of China set the range in which the onshore yuan is allowed to trade at 6.8065 — the lowest level since September 2020. A drop past the 6.815 level would push the yuan to its lowest in three years.

Meanwhile, the more freely traded offshore yuan dropped to 6.829 to the dollar, also its lowest since May. It was last down 0.25% to 6.821.

Like many currencies around the world, the yuan is feeling the pressure from a surge in the US dollar. The dollar index was up 0.15% Friday to 107.64.

The greenback has rallied sharply this year as the Federal Reserve has raised interest rates, making US investments relatively more attractive, and as investors worried about the world economy have sought out so-called safe-haven assets.

Yet China's economic woes are also weighing on the yuan, also known as the renminbi. The country is grappling with a crisis in the property sector, a strict zero-COVID policy, and a damaging heatwave.

This week the central bank unexpectedly cut interest rates after a raft of weak economic data. The move worried investors who took it as a sign that the economy is faring worse than they'd thought.

"The yuan has fallen by roughly 6% relative to the US dollar since March," said David Kelly, chief global strategist at JPMorgan Funds. "However, this largely reflects the global appreciation of the dollar."

Yet Kelly said the zero-COVID policy and the housing crisis are likely to further weigh on the growth. "All of these issues are having an impact on economic activity and Chinese authorities are downplaying their goal of 5.5% real GDP growth for 2022, which now looks unattainable," he said.