The Chinese yuan dropped below 7 per U.S. dollar for the first time since May 2008 after the People's Bank of China weakened its daily currency fixing as policymakers weighed unresolved trade tensions amid growth concerns.
The onshore yuan dropped 1.26% against the dollar to 7.0236 as of 11:15 a.m. Beijing time on Aug. 5 after the central bank set the reference rate for the currency at 6.8996 per dollar, its weakest level since December 2018. The onshore yuan can trade up to 2% above or below the PBoC's daily reference rate.
The offshore yuan fell 1.42% to 7.0748, its first time to breach the threshold since it started trading in 2010.
In June, Chinese policymakers repeated their pledge not to resort to "flood-like stimulus" amid speculation that the government would soon adopt new measures in the face of growth concerns and unresolved trade uncertainties.
PBoC Governor Yi Gang has also acknowledged that the Chinese yuan would temporarily face depreciation pressure due to the ongoing trade dispute between the U.S. and China, adding that "after the noise, [the yuan] will continue to be very stable and relatively strong compared to emerging market currencies."
Analysts previously forecast that the Chinese yuan could weaken past 7 per dollar if trade tensions persist or worsen in 2019, saying such a movement would also weaken currencies across the Asia-Pacific region as China's currency has gained influence.
Last week, the U.S. announced a 10% tariff on $300 billion of Chinese goods, effective Sept. 1, following inconclusive trade talks in Shanghai. U.S. and Chinese negotiators are slated to continue trade talks in Washington early next month.