‘Uncertainty’ over China’s yuan fuels market turmoil

WASHINGTON

REUTERS photo

U.S. Federal Reserve Chair Janet Yellen said Feb. 10 that China’s unclear policy over its yuan currency was stoking turbulence in global markets and exacerbating global economic growth concerns.

The yuan’s recent declines “have intensified uncertainty about China’s exchange rate policy and the prospects for its economy,” she said in testimony to Congress.

“This uncertainty led to increased volatility in global financial markets and, against the background of persistent weakness abroad, exacerbated concerns about the outlook for global growth.” 

Although she expressed confidence that China’s economy was not facing an abrupt stall, the US central bank chief said the overall uncertainty emanating from the world’s second-largest economy was behind some of the steep falls in global commodities prices, in turn stressing the economies of exporters.

“Recent economic indicators do not suggest a sharp slowdown in Chinese growth,” she said in prepared testimony.

But the uncertain yuan policy’s negative impact on the global economy “contributed to the recent fall in the prices of oil and other commodities.” 

In turn, she said, “low commodity prices could trigger financial stresses in commodity-exporting economies” as well as in commodity-producing firms around the world.

If such problems materialize, she added, “foreign activity and demand for U.S. exports could weaken and financial market conditions could tighten further.”