(Bloomberg) -- Chinese state media stuck to the government's line on the yuan's weakening, saying the move was normal while stressing the economic benefit of some flexibility in the currency.
The yuan falling beyond 7 a dollar is a “market-driven result” that shows the exchange rate is more flexible than before, according to a Monday report by Xinhua News Agency. Some fluctuation in market sentiment is normal amid rising external risks, it said.
People's Daily, the Communist Party's flagship newspaper, said it was difficult to predict the yuan's future. The central bank is now “more tolerant of fluctuations” than it was during the last depreciation cycle in 2016, it said in an article published on one of its WeChat accounts, adding that markets have a bigger role to play in the yuan's exchange rate.
The Trump administration formally labeled China a currency manipulator after the yuan weakened to its lowest level in more than a decade Monday, escalating its trade war with Beijing. While the move is largely symbolic, it underscores the rapidly deteriorating relationship between the world's two largest economies.
Read more: U.S. Labels China a Currency Manipulator, Escalating Trade War
The yuan pared losses on Tuesday morning in Hong Kong after China's central bank fixed the daily rate at stronger than 7 per dollar. People's Bank of China Governor Yi Gang said Monday that his country wouldn't use the yuan as a tool to deal with trade disputes.
Domestic financial media also sought to ease investors' nerves. The PBOC hasn't given up its “bottom-line mindset,” with policy makers considering a range of risks in managing the exchange rate, a China Securities Journal commentary said.
There's “no need to worry about a steep depreciation of the yuan, or shocks to assets prices amid capital outflow,” it said, adding that there is no basis for the yuan to weaken greatly.
To contact Bloomberg News staff for this story: Yinan Zhao in Beijing at yzhao300@bloomberg.net
To contact the editors responsible for this story: Jeffrey Black at jblack25@bloomberg.net, Sharon Chen, Karen Leigh
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With assistance from Bloomberg
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