The US-China Trade war has turned in to currency war

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This was seen by many as retaliation against new 10% tariffs imposed on Chinese by the Trump administration.

A second Shanghai-based trader said trade talks that were scheduled for September in Washington, prior to the latest USA tariff threat, now seem unlikely, adding further pressure on the Chinese currency.

China stabilized its currency Tuesday, suggesting it might hold off from aggressively letting the yuan weaken as a way to respond to USA tariffs on Chinese goods.

Signs of Chinese yuan and US dollar are seen at a currency exchange store in Shanghai, China August 8, 2019.

Yuan traders are finally moving on from the 7-per-dollar complex that has gripped the market for years.

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While a weaker currency is a natural outcome of China's worsening economy and a central bank in easing mode, Monday's sudden depreciation made it a target of criticism from the Trump administration.

United States and Chinese negotiators met in Shanghai in late July for the first time since talks collapsed in May, and were due to hold another round in September.

He pressed his relentless campaign against the U.S. central bank on Friday, but backed away from calls for a weaker exchange rate for the dollar. That came after a round of talks on resolving their tariff war ended in Shanghai with no indication of a deal.

"The Chinese yuan, which has been in the spotlight all week is edging closer to its recent decade-long low", Gorilla Trades strategist Ken Berman said in a note. The yuan was headed for a loss against the USA dollar of about 1.6% for the week, following Monday's drama when it crossed the key 7 per dollar level for the first time since the global financial crisis. It's really going to impact consumers even more and it's certainly, with the Chinese announcement that they're going to stop buying us agricultural goods, that's going to hurt our farmers. The central bank can buy or sell currency - or order commercial banks to do so - to keep the yuan's price from swinging too widely. That would allow the currency to weaken to as much as 7.100 while staying within the 2% trading band.

Trump's tariff hikes have put downward pressure on the yuan by fueling fears that economic growth might weaken.

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