mfb 01212019-2_00013105.jpg
mfb 01212019-2_00013105.jpg
PHOTO: CNN
Now playing
01:32
CNN Business Now
roger mcnamee fb capitol markets now_00013227.png
roger mcnamee fb capitol markets now_00013227.png
Now playing
03:07
Early Facebook investor: Sandberg's denial of Facebook's role is 'laughable'
PHOTO: Shutterstock
Now playing
02:54
Strategist on bitcoin: Pullback is very expected
Democratic candidates for Senate Jon Ossoff (L), Raphael Warnock (C) and US President-elect Joe Biden (R) bump elbows on stage during a rally outside Center Parc Stadium in Atlanta, Georgia, on January 4, 2021. - President Donald Trump, still seeking ways to reverse his election defeat, and President-elect Joe Biden converge on Georgia on Monday for dueling rallies on the eve of runoff votes that will decide control of the US Senate. Trump, a day after the release of a bombshell recording in which he pressures Georgia officials to overturn his November 3 election loss in the southern state, is to hold a rally in the northwest city of Dalton in support of Republican incumbent senators Kelly Loeffler and David Perdue. Biden, who takes over the White House on January 20, is to campaign in Atlanta, the Georgia capital, for the Democratic challengers, Raphael Warnock and Jon Ossoff. (Photo by JIM WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)
Democratic candidates for Senate Jon Ossoff (L), Raphael Warnock (C) and US President-elect Joe Biden (R) bump elbows on stage during a rally outside Center Parc Stadium in Atlanta, Georgia, on January 4, 2021. - President Donald Trump, still seeking ways to reverse his election defeat, and President-elect Joe Biden converge on Georgia on Monday for dueling rallies on the eve of runoff votes that will decide control of the US Senate. Trump, a day after the release of a bombshell recording in which he pressures Georgia officials to overturn his November 3 election loss in the southern state, is to hold a rally in the northwest city of Dalton in support of Republican incumbent senators Kelly Loeffler and David Perdue. Biden, who takes over the White House on January 20, is to campaign in Atlanta, the Georgia capital, for the Democratic challengers, Raphael Warnock and Jon Ossoff. (Photo by JIM WATSON / AFP) (Photo by JIM WATSON/AFP via Getty Images)
PHOTO: JIM WATSON/AFP/Getty Images
Now playing
02:11
Economist: Even with a blue wave, Biden's tax ambitions could stall
FILE - The New York Stock Exchange is seen in New York, Monday, Nov. 23, 2020.   Stocks are ticking higher on Wall Street Wednesday, Dec. 23,  following a mixed set of reports on the economy.   (AP Photo/Seth Wenig)
FILE - The New York Stock Exchange is seen in New York, Monday, Nov. 23, 2020. Stocks are ticking higher on Wall Street Wednesday, Dec. 23, following a mixed set of reports on the economy. (AP Photo/Seth Wenig)
PHOTO: Seth Wenig/AP
Now playing
02:07
Dow falls on first trading day of the year
Now playing
01:02
Scaramucci: Bitcoin is due for a correction
Now playing
05:05
MoneyGram CEO: Our digital platforms are driving growth
PHOTO: CNN
Now playing
04:34
Airbnb CEO: People still yearn to travel
NEW YORK CITY- MAY 12: People walk through a shuttered business district in Brooklyn on May 12, 2020 in New York City. Across America, people are reeling from the loss of jobs and incomes as unemployment soars to historical levels following the COVID-19 outbreak. While some states are beginning to re-open slowly, many business are struggling to find a profit with the news restrictions and a population that is fearful of the contagious virus.  (Photo by Spencer Platt/Getty Images)
NEW YORK CITY- MAY 12: People walk through a shuttered business district in Brooklyn on May 12, 2020 in New York City. Across America, people are reeling from the loss of jobs and incomes as unemployment soars to historical levels following the COVID-19 outbreak. While some states are beginning to re-open slowly, many business are struggling to find a profit with the news restrictions and a population that is fearful of the contagious virus. (Photo by Spencer Platt/Getty Images)
PHOTO: Spencer Platt/Getty Images
Now playing
02:22
Economist: It's going to take years for jobs to recover
Now playing
01:29
Chewy's CEO expects growth to continue post pandemic
Now playing
02:04
These pot stocks are poised to win big under Biden
Specialist Patrick King works at the New York Stock Exchange on Monday, Nov. 23, 2020. Stocks rose in early trading Monday after investors received several pieces of encouraging news on COVID-19 vaccines and treatments, tempering concerns over rising virus cases and business restrictions.  (Nicole Pereira/New York Stock Exchange via AP)
Specialist Patrick King works at the New York Stock Exchange on Monday, Nov. 23, 2020. Stocks rose in early trading Monday after investors received several pieces of encouraging news on COVID-19 vaccines and treatments, tempering concerns over rising virus cases and business restrictions. (Nicole Pereira/New York Stock Exchange via AP)
PHOTO: Nicole Pereira/New York Stock Exchange/AP
Now playing
02:15
Dow crosses 30,000 mark for the first time ever
The Federal Reserve is seen in Washington, Monday, Nov. 16, 2020. President Donald Trump
The Federal Reserve is seen in Washington, Monday, Nov. 16, 2020. President Donald Trump's unorthodox choice for the Federal Reserve Board of Governors, Judy Shelton, could be approved by the Senate this week, according to Majority Leader Mitch McConnell's office. (AP Photo/J. Scott Applewhite)
PHOTO: J. Scott Applewhite/AP
Now playing
03:39
Alan Greenspan on the Fed's pandemic response
Now playing
02:54
GoodRx Co-CEO says Amazon Pharmacy isn't a competitor
Now playing
02:45
Moderna chairman: We don't need deep-freeze conditions for vaccine
(CNN Business) —  

The Chinese yuan dropped sharply on Monday to its weakest level against the US dollar in more than a decade, raising fears of further dangerous escalation in the US-China trade war.

The yuan fell after the People’s Bank of China set its daily reference rate for the currency at 6.92, the weakest rate since December. China’s central bank sets a “band” every day within which the yuan’s value is only allowed to move 2% up or down.

In mainland China, one US dollar now buys about 7.03 yuan. In trading outside of China, where the yuan moves more freely, it stands at 7.07 to the dollar. Earlier, it had slipped to a record low offshore.

The symbolically important threshold of 7 was last crossed during the 2008 financial crisis.

The central bank said that it is fully capable of keeping the yuan “reasonable and balanced,” adding in a statement that Monday’s weakness was mostly because of “trade protectionism and new tariffs on China.” President Donald Trump announced a new round of tariffs on the country last week.

Devaluing the yuan is one way China has of retaliating against Trump’s tariffs, but it’s fraught with risk.

The market took the Chinese central bank’s decision to lower the fixing rate that much as a “message of intent” to Trump, said Chris Weston, head of research at Pepperstone Group, in a research note.

He added that the yuan’s depreciation will trigger fears about capital flight from China, along with a subsequent tightening of financial conditions in the Chinese economy.

In mainland China, one US dollar now buys about 7.03 yuan. In trading outside of China, where the yuan moves more freely, it stands at 7.07 to the dollar. Earlier, it had slipped to a record low offshore.

In its statement, China’s central bank said it would take targeted measures as necessary to crack down on speculation and stabilize market expectations.

Citigroup strategist Gaurav Garg saw the decision to “unleash” the exchange rate as a potential response to the trade tensions that “may further complicate the US-China negotiations.”

“US authorities have been sensitive to currency moves,” he wrote in a research note. “They have on multiple occasions blamed currency manipulation to dampen the impact of trade tariffs and have insisted on currency stability as an important part of any agreement between the US and China.”

Markets across Asia tumbled in early trading on fears about the trade tension.

Japan’s Nikkei dropped 1.7% and South Korea’s Kospi lost 2.6%. The Shanghai Composite Index fell 1.6%. In Hong Kong, where protest leaders called on people to participate in strikes across the city, the Hang Seng (HSI) Index fell as much as 3.1%, the biggest drop since October.

“Risk aversion had certainly been the latest theme for markets, one to weigh on both Asia equities and currencies,” said Jingyi Pan, a market strategist for IG Group. “Trade jitters linger for Asia markets going into the fresh week.”

Trump ratcheted up his country’s trade war with China last week when he announced plans Friday to slap a 10% tariff on $300 billion worth of goods. That means effectively all Chinese exports to the United States will soon be taxed.

Beijing, meanwhile, said it was ready for a fight.

Here are some of the other big moves on Asian markets at 3:00 p.m. Hong Kong time.

  • HSBC shares that are listed in Hong Kong dropped 1.5% after the British banking giant announced John Flint will step down as chief executive. HSBC said a change was needed because of an “increasingly complex and challenging global environment.”
  • Hang Seng Bank, a unit of HSBC and one of Hong Kong’s largest lenders, tumbled 3.8%. In an earnings report, the bank cited a “a challenging operating environment” and slowing economic growth in the city. It forecast full-year GDP growth for Hong Kong to reach between 1% and 1.5%, down from from last year’s 3%. “Downshifts in retail sales and trade growth signal that the economic environment will remain challenging,” the bank said.
  • Last week, the S&P 500 index and the Nasdaq Composite Index both posted the worst week for the year, down 3.1% and 3.9% respectively. The Dow Jones Industrial Average was down 2.6% for the week.