China’s Weaker Yuan Sends Ripples Across Emerging Market Currencies

Emerging-market currencies dropped Wednesday, with an index of developing-nation currencies heading for its steepest one-day loss in a week and a half. 

The offshore yuan sank as much as 0.5% to 7.2921 per dollar after Reuters reported that Beijing may let the currency weaken further next year to offset the impact of potential US tariffs under President-elect Donald Trump.

China’s yuan has been falling this quarter as policymakers intensify monetary stimulus to make exports more competitive. The depreciation supports Chinese exporters but raises risks of capital outflows and financial instability, challenges that could ripple through emerging markets tied to Chinese demand, as cheaper Chinese undercut competitors in other developing economies. 

The correlation between China’s exchange rate and a broader developing-nation FX gauge climbed to the highest level since June, underscoring how tariff strategies between the US and China remain a central risk for emerging markets.

The latest news about the Chinese currency adjustment would be akin to the 10%-15% depreciation during Trump’s first term, said Guillaume Tresca, senior emerging-market strategist at Generali Investments. 

“It is not a currency war per se but an adjustment to the impact tariffs could have on the Chinese economy,” he said, adding that weaker yields in China limit policymakers’ ability to allow sharp devaluation without exacerbating capital outflows.

Elsewhere, Brazilian Vice President Geraldo Alckmin canceled his agenda and returned to Brasilia to fill in for Luiz Inacio Lula da Silva, who underwent emergency brain surgery. The government hasn’t announced any plans to transfer official duties. The nation’s central bank is expected to increase borrowing costs for a third straight time on Wednesday.

In South Africa, the inflation rate crept up by less than expected in November amid benign food-price growth, creating room for the central bank to cut borrowing costs again next month.

MSCI’s index for emerging-market equities declined for a second day ahead of the release of US inflation data. Losses were led by Taiwan Semi and Meituan.

This article was generated from an automated news agency feed without modifications to text.