China's central bank said on Tuesday it is "resolutely opposed" to the United States labelling Beijing a currency manipulator a day after it let the yuan weaken significantly against the dollar.
China's central bank steadied the yuan on Tuesday, but stock markets continued to fall.
The US Treasury Department on Monday "determined that China is a currency manipulator" -- the second major escalation in the two countries' spiralling trade war in just 24 hours.
The People's Bank of China (PBOC) called the designation "wayward unilateralism and protectionist" and said it "seriously undermined international rules".
The yuan exchange rate "is driven and determined by market forces," the central bank said in a statement, adding it is "resolutely opposed to this".
Both the onshore and offshore yuan breached the 7.0 level against the dollar on Monday, which investors see as a key threshold in the Chinese currency's value, and global equity markets tumbled amid fears of the escalating trade war between the two biggest economies.
But forex trading on Tuesday was calmer, with the onshore yuan weakening 0.08 per cent to 7.0512, and the offshore currency strengthening 0.24 per cent to 7.0802.
China's central bank weakened its central parity bank rate on Tuesday to the lowest level in more than 11 years, but by less than many analysts were expecting -- suggesting the bank does not want to let the currency move too much.
"A more market-friendly China fix provided the first signal that the PBOC is having a second thought about weaponising the yuan," said Stephen Innes, managing partner at VM Markets Pte Ltd Singapore.
"However, the fix is ambiguous enough to keep two-sided interest alive while still conveying a message to US trade hawks that in no uncertain terms will China be a pushover," he said.
The yuan is not freely convertible and the Chinese government limits its movement against the US dollar to a two per cent range on either side of a central parity rate that the central bank sets each day to reflect market trends and control volatility.
On Tuesday the midpoint rate was set at 6.9683.
"Since 2018 the United States has continuously escalated the trade dispute and China has always insisted it will not engage in competitive devaluation," the central bank said.
Allowing the yuan to depreciate makes Chinese exports cheaper and offsets some of the burden of punitive US tariffs that will soon be slapped on nearly all of its goods.
"China has not used the exchange rate as a tool to deal with trade disputes," the statement said.
The yuan's weakening came just days after the US announced plans to raise tariffs on another USD 300 billion in Chinese imports, accusing Beijing of failing to live up to commitments in trade negotiations.
That would make virtually all of the roughly USD 660 billion in goods traded annually between China and the United States subject to tariffs.
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