Exchange rate changes expected and normal

On Aug 11, 2015, the People's Bank of China lowered the yuan's exchange rate by almost 2 percent. The central bank's move pushed the yuan's "daily fix" to 6.2298 against the US dollar. This move was its biggest one-day change for the yuan since China had loosened (somewhat) its dollar peg in June 2010.

The yuan halted a three-day slide after the central bank soothed market sentiments on Thursday, reversing short but sharp declines triggered by a foreign exchange policy change. The developments immediately made financial market observers jump to two "conclusions": First, while the central bank, in its announcement of the move, paid lip service to a more flexible exchange rate regime, its action really signaled panic over China's slowing growth. And second, this devaluation was not a one-time shot, but rather the likely start to a prolonged period of engineering the yuan downward in a resolute effort to increase China's external competitiveness.

As news of the devaluation spread, all China-sensitive asset prices - such as oil, copper, shares of luxury brands and cars, and emerging-market currencies - dove below their already depressed levels.