Trang Thuy Le, a forex strategist with Macquarie Group in Hong Kong, who correctly predicted in July that yuan would weaken below 7 in the third quarter, said the move was not an indication that Beijing intended to start a currency feud. “It is a delayed adjustment to economic fundamentals rather than the start of a currency war,” Trang said.

But to US President Donald Trump, the yuan’s decline was a clear signal that Beijing was manipulating its currency. “China dropped the price of their currency to an almost a historic low. It’s called ‘currency manipulation’,” he tweeted.

Shen Jianguang, the chief economist for JD Digit and a veteran Chinese economy watcher, said Beijing’s timing in allowing the yuan to weaken below 7 was ill-chosen, given that Washington was no longer willing to give Beijing the benefit of the doubt. In this atmosphere of mistrust, the episode offered Trump an excuse to ratchet up the trade war.

“It’s good that China wants the market to play a bigger role [in setting the yuan exchange rate], but [the yuan’s move] was inevitably read by the US side as a deliberately hostile move to offset tariff effects,” Shen said. “As it turned out, the US response was stronger than China probably expected.”

A PBOC statement on Monday morning argued that the yuan’s drop was related to “expectations of additional tariffs on Chinese products”, the only line in a 1,600-character statement that backed Trump’s theory that Beijing was deliberately weakening the yuan in response the threat of a new 10 per cent tariff on $300 billion of Chinese goods.

But that was enough, in itself, to fuel currency war concerns. Part of this statement was used by the US Treasury to justify its decision to designate China as a currency manipulator.

Yi’s statement failed to win over US Treasury Secretary Steven Mnuchin, who moved ahead with the designation, bringing the bilateral relationship between the world’s two largest economies to a new low and causing a sharp slide in global financial markets.

Yu Yongding, an adviser to Beijing on exchange rate policy, was appalled at the US decision.

“It is ridiculous to label [China] a currency manipulator simply because of one small exchange rate change on one trading day,” Yu, a fellow at the Chinese Academy of Social Sciences, told the South China Morning Post in an interview. “The US is trying to start a currency war and it has rushed to find an excuse [to do so].”

In the two days since, China’s central bank has moved to support the yuan’s value, including setting stronger-than-expected midpoint prices for the yuan’s daily trading range and announcing a plan to sell yuan securities in Hong Kong to soak up yuan liquidity and so support its exchange rate.

In addition, China’s major state banks were active in supporting the yuan in the onshore market, Reuters reported.

Hua Changchun, an economist with Guotai Junan Securities, a brokerage, said Beijing and Washington have been groping around in the “fog of war”, with each side trying to guess the other’s true intentions and possible next steps.

“China apparently did not expect the US to react in such a fierce manner,” Hua said. “Now the situation has become very difficult to handle.”

According to Arthur Kroeber, head of research at economic consulting firm Gavekal Dragonomics, the currency spat reflects a significant thinning in the goodwill between Beijing and Washington.

Beijing’s decision to allow the yuan to weaken “signals that Beijing thinks a trade deal is no longer a plausible prospect”. In turn, the US response to place the currency manipulator tag on China “signals that the Trump administration is no longer very interested in seeking a deal”, Kroeber wrote in a note on Tuesday.