"If we are right, then talk of this triggering a fresh wave of global "currency wars" is clearly overdone. Most currencies have still fallen substantially further against the US dollar. The idea that some additional, relatively limited moves in the renminbi-dollar rate will have a material impact on the economies of Europe or the US, let alone the rate decisions of the Fed, is frankly ludicrous," he added.
Currencies among the most severely hit were the Australian and New Zealand dollars which tumbled 1.3 percent and 1 percent against the greenback respectively. Japan's Yen also fell to a two-month low.
"The next couple of days will be watched closely. We believe PBoC will let the fix adjust further to market forces, albeit more gradually. Meanwhile, the central bank could also smooth the upside in onshore dollar-yuan (USD-CNY) spot to prevent it from overshooting and ensure market order. Eventually, USD-CNY should gradually settle at a new equilibrium level," head of global emerging markets FX research at HSBC, Paul Mackel said.
In Europe, stocks extended losses throughout the trading session, with the German DAX facing the brunt of the selling, falling 2 percent after the country's ZEW survey showed economic sentiment weakened from the previous month. The pan-European FTSEurofirst 300 traded around 1.5 percent lower.
"Some commentators have observed that if the market is allowed to determine the level of the Chinese currency, its recent behavior suggests it will try and push it lower. That may not be to the liking of the PBoC, who can intervene to push back," co-head of multi-asset at Henderson Global Investors, Bill McQuaker said.
However, if they were to fight the market and support the currency, why loosen the reins in the first place? Make no mistake, the days and weeks ahead will be interesting ones to watch, and may have real impact on asset prices," he said.