The Chinese yuan fell to its lowest level against the dollar since August 2010 in morning trade on Monday, fueling speculation that Beijing is allowing currency depreciation to counter threatened US tariffs.
The offshore currency weakened to 7.1085 to the dollar, days after US President Donald Trump announced a plan to impose fresh tariffs on another USD 300 billion in Chinese goods, escalating trade war tensions between the world's two biggest economies.
The onshore yuan also tumbled, hitting 7.0307 on Monday morning trade to reach its lowest level since 2008.
Both the onshore and offshore yuan breached the 7.0 level against the dollar, which investors see as a key threshold in currency value.
Trump has frequently accused China of artificially devaluing its currency in order to support its exports -- charges long denied by Beijing.
"It appears that the tariffs hike suggests the return of tit-for-tat moves and a suspension of trade talks, and the PBOC sees no need to keep the yuan stable in the near term," Ken Cheung, a senior currency strategist at Mizuho Bank Ltd, told Bloomberg News.
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The Chinese central bank sets a daily central rate, which was at 6.9225 per dollar on Monday, 0.33 percent weaker than on Friday. China allows the yuan to rise or fall two percent on either side of the fixed daily rate to control volatility.
Trump jolted global stock markets last week when he issued the threat of more tariffs just a day after US and Chinese trade negotiators revived talks aimed at ending the year-long dispute.
Beijing has vowed to hit back if Washington goes ahead with its latest duties set to begin September 1, while news that demand for US exports had weakened has underscored concern that trade is becoming a trouble spot for economies worldwide.