China's yuan falls below sensitive level of 7 to US dollar

China allowed its yuan to fall below the politically sensitive level of seven to the US dollar on Monday for the first time in 11 years, prompting concern that Beijing might use devaluation as a weapon in a tariff war with Washington.

The central bank blamed the exchange rate's decline on "trade protectionism." That followed President Donald Trump's threat last week of more tariff hikes on Chinese goods in a bruising fight over Beijing's trade surplus and technology policies.

The currency weakened to 7.0391 to the dollar by late afternoon, making one yuan worth 14.2 cents, its lowest level since February 2008.

"The thought of a currency war is crossing more than a few traders' minds," Stephen Innes of VM Markets said in a report.

The weakness of the yuan, also known as the renminbi, or "people's money," is among U.S. grievances against Beijing. American officials complain it makes Chinese export prices unfairly low, hurting foreign competitors and swelling Beijing's trade surplus.

China's central bank sets the exchange rate each morning and allows the yuan to fluctuate by 2% against the dollar during the day. The central bank can buy or sell currency or order commercial banks to do so to dampen price movements.

It appears "the currency is now also considered part of the arsenal to be drawn upon," Robert Carnell of ING said in a report. He said Monday's move might be part of "a concerted series of steps aimed at pushing back at the latest U.S. tariffs."