On Monday, the Chinese yuan fell to its lowest level in two years. This happened after the country put in place new COVID-19 restrictions in Chengdu. The mixed activity in the service sector and the strength of the dollar also hurt.
The weakest level for the yuan against the dollar since August 2020 was 6.9390, a drop of 0.6%.
After a number of COVID outbreaks in Chengdu, the government kept the city in lockdown for longer. With movement restrictions still in place in Shenzhen, traders worried that the economy would be slowed down even more.
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Last week, data showed that China’s manufacturing sector shrank for the second month in a row in August. This led to the new lockdowns.
Monday, Caixin released the results of a private survey that showed the Chinese services purchasing managers index (PMI) was 55 in August, which was higher than analyst predictions of 54. But the reading went down from 55.5 in July.
Concerns were raised by the reading that the recovery in the services sector might be slowing down. The huge service industry in China is a big reason why the economy is growing. This year, the service industry has made up most of China’s GDP.
China’s non-manufacturing industries grew at a slower rate in August, according to official PMI data released last week.
This year, there have been a number of strict COVID-19 lockdowns that have hurt China’s economic growth. Beijing hasn’t changed its strict zero-COVID policy yet.
Last month, the People’s Bank of China cut lending rates, which hurt the yuan. The government also announced a number of spending and growth-boosting measures.
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The yuan was also hurt by the strength of the dollar, which hit its highest level in 20 years on Monday. Most risky assets have lost money because investors think the Federal Reserve will raise interest rates again.
