China is expected to continue devaluing its currency in the coming months, a move that raised concerns about a possible global currency war and recovery of global economy.
"Now, if you ask me — will China further make market move for weakening its currency; my answer would be - yes. China could do that going forward based on its exchange rate," said Ian Stannard, executive director and head of European currency strategy at Morgan Stanley.
Chinese authorities unexpectedly devalued the country's exchange rate on Tuesday so as to revive the slowing economic activity in the country. China allowed the currency to fall further on Wednesday.
"If you look at economic data points in China —it has weakened significantly in some cases, hence you can make a point that the currency was overvalued," he told The Economic Times.
A devaluation of yuan will help China boost its slumping exports as a cheaper yuan will make its exports more competitive in the overseas markets. China's exports fell 8.3% in July and a deflationary trend in producer prices persisted for a fourth straight year.
Growth in the world's second largest economy is estimated to touch a 25-year low, although its official target of 7% set for this year has been met.
However, the International Monetary Fund (IMF) welcomed the devaluation of yuan by China.
"Beijing should aim to achieve an effectively floating exchange rate within two to three years," IMF told Reuters.
The Indian rupee slid to a two-year low, taking a cue from depreciation in currencies of other emerging markets, following China's devaluation move. China's exchange rate reforms also weighed on the domestic stock markets and commodities.
Easing concerns over further depreciation in the domestic currency, Ian said "rupee is likely to remain stable relative to other currencies despite volatility in global currency markets."
"Other currencies from countries like Korea, Singapore, Malaysia, Thailand, and Taiwan have a bearish case. I expect the Indian rupee to trade around current levels as I expect fundamentals to improve," he added.