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Yen hits 7-month high as yuan plumbs 11-year low

London

CHINA let its yuan weaken below 7 to the dollar on Monday, an 11-year low, as the escalation in the US-China trade war shook currency markets.

Fearful of the impact on global growth, investors dumped export-oriented Asian currencies and rushed into safe havens, with the Japanese yen surging to a seven-month high.

Chinese authorities, who had been expected to defend the psychologically important level of 7 per dollar, allowed the currency break through the floor to its lowest in the onshore market since the 2008 global financial crisis. In offshore markets, the yuan fell to its weakest since international trading of the Chinese currency began. The currency was headed for its biggest one-day drop in four years.

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It was last down 1.5 per cent at 7.0835 in offshore markets.

The fall came after Beijing vowed on Friday to fight back against US President Donald Trump's decision to impose 10 per cent tariffs on US$300 billion of Chinese imports, ending a month-long trade truce.

"The fallout has been most evident in the Asia region," MUFG analyst Derek Halpenny said. "We certainly expect to see general FX volatility increase in the coming days with daily PBOC (People's Bank of China) CNY fixes an important focus each day."

The currencies of other Asian economies closely linked with China's growth prospects also dropped while stock markets sold off sharply. The Korean won fell 1.4 per cent against the dollar, on course for its biggest one-day loss since August 2016. The new Taiwan dollar fell more than 0.7 per cent.

The US dollar fell, weakening as the European trading day wore on. It dropped 0.3 per cent against a basket of currencies to 97.788.

Against the euro, the dollar slipped 0.4 per cent to US$1.1155 .

Japan's yen, which investors buy in times of risk aversion, rose 0.7 per cent to its highest since a January flash crash. The yen was last up 0.5 per cent at 106.04, after hitting 105.78 earlier.

The Swiss franc, another safe-haven currency, strengthened 0.4 per cent to 1.0864 francs per euro, a new 25-month high.

Sterling fell again after media speculation over the weekend that Prime Minister Boris Johnson was preparing for a general election.

The pound shed as much as 0.5 per cent to US$1.2105, not far from its two-year low of US$1.2080 touched last week. It was last down 0.2 per cent at US$1.2144.

It fell 0.7 per cent against the euro to 92 pence, a new 23-month low. REUTERS