China let its yuan weaken below 7 to the dollar on Monday, an 11-year low, leading to broad risk aversion on concerns about the escalation of the U.S.-China trade war.
Fearful of the impact on global growth, investors dumped export-oriented Asian currencies and rushed into safe havens, with the Japanese yen surging to a seven-month high.
Chinese authorities, who had been expected to defend the psychologically important level of 7 per dollar, allowed the currency break through the floor to its lowest in the onshore market since the 2008 global financial crisis.
"We've had a pretty meaningful reaction, where 7 in particular was a level that the market was very sensitive to in dollar/CNY. Now that we've broken that, risk appetite has taken a hit," said Brian Daingerfield, head of G10 FX strategy for the Americas at NatWest Markets in Connecticut.
"I think there's a sense that President Trump might try and escalate in terms of a reaction, if he thinks that this was a deliberate move by the Chinese to try and weaken their currency artificially," Daingerfield said.
The weaker Chinese currency came after Beijing vowed on Friday to fight back against U.S. President Donald Trump's decision to impose 10% tariffs on $300 billion of Chinese imports, ending a month-long trade truce.
Trump on Monday called the move in the Chinese currency "a major violation" and "currency manipulation."
The escalation of the trade dispute has led investors to be on watch for any U.S. efforts to weaken the greenback, though a direct intervention is still viewed as unlikely.
Japan's yen, which investors buy in times of risk aversion, rose to its highest since a January flash crash. The yen was last up 0.5% at 106.05, after hitting 105.80 earlier.
Japan's top currency diplomat, Yoshiki Takeuchi, warned that Tokyo was ready to intervene if yen gains threatened its export-reliant economy.
The Swiss franc, another safe-haven currency, strengthened 0.86% to 0.9738 francs per dollar, the strongest since June 25.
The Australian dollar, often used as a proxy bet on China, fell to a seven-month low of $0.6749, before rising back to $0.6776.
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