The yuan slumps to a new low on Tuesday morning.
The yuan, the currency of China went to a new low in early trade. It went past 6.97 against the dollar on Tuesday. It has touched the lowest levels since May 2008.
Analysts say that the trade war between the US and China is the chief reason for the slump in the Yuan. The rising interest rates in the United States are another reason for the slump.
The yuan has gone down by 9 percent against the dollar from the peaks of January.
Seven is a great support level for the yuan and as long as the currency is trading above this level, investors can continue to have faith in the currency. “If this crucial level breaks, investors will be thrown from their comfort zone”, says Kevin Lai, an economist at Daiwa Capital Markets.
Beijing had already spent much of its dollars to strengthen its currency when investors lost confidence in the yuan during the years 2015 and 2016. A huge amount of currency was taken away from China, fearing a drop in its currency.
The G20 summit that is to take place next month will now play a very crucial role in China. In this summit, a meeting between President Trump and Xi Jinping, the president of China is scheduled.
President Trump had earlier, pointed out to currency manipulation from China to devalue its currency deliberately. Beijing has rejected any such claim from their side to devalue the currency.
The central bank of China will intervene to keep up the value of its currency say analysts at Capital Economics. But the yuan may slip down from 7 past the dollar soon, say analysts.
If talks fail between China and the US during the meeting, the drop in the value of yuan is inevitable, says currency strategist, Gao Qi at Scotiabank, Singapore.