China devalued the yuan after IMF delayed a decision about reserve currency

China’s decision to devalue the yuan is good news for dollar bulls.

China’s central bank cut the yuan’s daily fixing rate by a record 1.9 percent Tuesday after the International Monetary Fund last week delayed a decision to endorse it as a reserve currency. The move cast doubts on the health of the world’s second-largest economy, weighing on the currencies of its trading partners and competitors.

“Given that the Chinese economy needs some kind of release valve, with the postponement, they will probably use this as an excuse to let the yuan drift lower,” said Nudgem Richyal, a senior fund manager in Singapore at J O Hambro Capital Management, which manages more than $20 billion. “For the dollar, there is probably more reason to own it.”

The People’s Bank of China had kept the yuan broadly stable against the dollar since March to encourage greater global usage in a push for official reserve status at the IMF. China has been pushing for the yuan to join the dollar, euro, yen and pound in the basket of currencies that make up the fund’s Special Drawing Rights.

The Chinese central bank’s move on Tuesday was a one-time adjustment, it said in a statement, adding that it plans to keep the yuan stable at a “reasonable” level and will strengthen the market’s role in determining the fixing.

“They’re saying it’s a one-off, but I don’t think the market’s actually buying that,” said John Gorman, head of dollar interest-rate trading for Asia and the Pacific at Nomura Holdings Inc. in Tokyo. “This might be the start of a broader change. That’s why the market is reacting so strongly.”