The yuan suffered its biggest fall in over two decades on Tuesday, hitting a three-year low after the Chinese central bank surprised markets by devaluing it by almost 2 percent, firing a broadside in what many analysts saw as a looming currency war.
The bank described the move as a "one-off depreciation" and billed it as free-market reform, but, after a run of weak Chinese data, with exports tumbling more than 8 percent in July, many economists said it was aimed at boosting the competitiveness of the world's second-biggest economy.
Others pointed to China's wish to be included in the International Monetary Fund's Special Drawing Rights (SDR) basket of currencies as the main driver of the decision, arguing the size of the depreciation would not be enough to significantly help exporters.
"This was a bombshell to the markets overnight," said Dean Popplewell, chief currency strategist at Oanda in Toronto. "The natural reaction is to try to sit back and decipher possible outcomes."
