- The Chinese yuan slid to its weakest level in a decade Tuesday.
- Breaching a key level of 7 per dollar could trigger capital flight and market volatility.
- Watch the yuan trade in real time here.
The Chinese yuan slid to its weakest level against the dollar in more than a decade on Tuesday, raising questions about how far policymakers might let the currency fall.
The People's Bank of China set the dollar's reference rate, a range for domestic trading that officials set daily, at 6.9574 yuan per US dollar. The currency subsequently fell to as low as 6.9750 against the greenback, its weakest since May 2008.
Escalating trade tensions between Washington and Beijing have added pressure to an already slowing Chinese economy, raising speculation about how far the central bank might let the currency fall. On Monday, President Donald Trump said his administration was ready to place tariffs on all remaining Chinese imports to the US if trade talks don't go anywhere.
Reuters reports officials are expected to stop the currency from sliding past a key psychological level of 7 per dollar in the near term, which could trigger capital flight and market volatility.
Hussein Sayed, chief market strategist at FXTM, noted Chinese equities could reverse if the currency weakens past that level. The Shanghai Composite closed up 1% at 2,568.05 on Tuesday.
"The yuan's weakness also reflects lack of confidence as more stimulus means more fiscal deficit, a negative factor in the longer run," he added.
Economists at Deutsche Bank wrote in a recent research note that they expect China to continue to ease policy in efforts to combat trade tensions, possibly letting the yuan fall to as low as 7.4000 next year.
