BEIJING • The yuan ignored a declining US dollar to drop to an eight- year low, with banks slashing their forecasts for China's exchange rate amid concern that an imminent Federal Reserve interest-rate increase will accelerate capital outflows.

The currency fell to 6.8703 against the greenback, the weakest since December 2008. A gauge of US dollar strength dropped for a second day after posting the biggest four-day rally in seven years following Mr Donald Trump's surprise win in last week's presidential election. He has promised to label China a currency manipulator and slap tariffs on the nation's exports.

Standard Chartered yesterday joined at least four other banks in lowering its forecasts for the yuan, predicting a year-end level of 6.9, compared with 6.75 earlier. The odds of Fed tightening this year have shot up to 94 per cent, amid speculation the US monetary authority will move to cap inflation as a Trump-led administration steps up spending. This would reduce the allure of emerging-market assets.

"The pressure for the yuan to decline could be stronger next year as Mr Trump's policies could lead to a US dollar rally amid concerns about China-US trade relations," said Mr Harrison Hu, chief greater China economist at Royal Bank of Scotland Group.

"The People's Bank of China can curb high volatility with stronger fixings and intervention, but it won't do so unless outflows surge, as such measures could add great pressures to the foreign reserves."

A record US$44.7 billion (S$63.4 billion) left China in September in yuan payments, while the nation's foreign-exchange stockpile shrank the most since January last month.

Chinese officials have taken a series of steps to plug capital control loopholes, such as a potential plan to curb transactions that use the bitcoin digital currency to take funds out of the country.

HSBC Holdings, UBS Group and Australia & New Zealand Banking Group lowered their yuan forecasts on Tuesday, predicting that the currency will end this year at 6.9 per US dollar, compared with earlier estimates of 6.8 for the first two lenders and 6.75 for the third. BMI Research, a unit of Fitch Group, downgraded its year-end forecast to 6.85 from 6.8, while Norddeutsche Landesbank said it has revised its view to 7 from 6.8.

The yuan fell 0.19 per cent to 6.8694 per US dollar as of 1.04pm in Shanghai, extending a five-day decline to 1.3 per cent. The Chinese currency traded in Hong Kong's offshore market weakened as much as 0.14 per cent to a record low 6.8825.

BLOOMBERG