U.S. stock index futures indicated a sharply lower open on Tuesday after the People's Bank of China (PBoC) allowed the yuan to depreciate almost 2 percent against the U.S. dollar, pushing the currency to suffer its biggest fall in over two decades.
The central bank's surprising move, which it described as a "one-off depreciation" moved the renminbi's daily peg against the dollar from 6.2298 renminbi against the U.S. dollar, down from 6.1162 on Monday.
The move sent shock waves through currency markets, with analysts seeing the move as the latest aggressive step in the so-called global currency wars.
"Over the last two years, since the Taper Tantrum summer, the yuan has dropped 3 percent against the dollar, but the yen's fallen 23 percent, the Euro 18 percent, and other Asian currencies have fallen by between 5 percent and 25 percent," said Kit Juckes, global head of foreign exchange strategy at Societe Generale.
"Relative to those moves, the Chinese adjustment is a token move that won't do anything to stop the economic slowdown. Whether or not the PBoC intends this to be the start of a series of steps towards a more competitive currency, the domino effect to weaker commodity prices and weaker currencies across EM and resource exporters will be hard to stop," he added.