LONDON (Reuters) – The yuan pulled back from an all-time low in offshore trade on Tuesday after Beijing appeared to take steps to prevent it weakening further, following a sharp drop that prompted the U.S. government to declare China was manipulating its currency.

China said on Tuesday it was selling yuan-denominated bills in Hong Kong, in a move seen as shrinking yuan liquidity and curtailing short selling of the currency.

The People’s Bank of China also fixed the daily reference rate for the onshore Chinese yuan at 6.9683, firmer than the expected 6.9871, and below the key 7 rate through which it broke on Monday.

Analysts said these moves suggested Chinese authorities may not be ready yet to let the yuan, also known as the renminbi, weaken much further.

“The decision of the PBOC to set the CNY fix stronger is the key catalyst driving financial market sentiment today and countered the decision in Washington to formally cite China as a currency manipulator,” said Derek Halpenny, head of global markets research at MUFG.

The yuan CNH=EBS was last up by 0.4% in offshore trade at 7.0675 against the dollar after plunging to 7.14 late on Monday, its lowest level since offshore trading began in 2010.

(Graphic – Chinese offshore yuan hits all-time low against dollar overnight: tmsnrt.rs/2YqYNcg)

In onshore trade the yuan CNY=CFXS opened at 7.0699 per dollar, versus its last close at 7.0498.

If the Chinese central bank fixes the rate at or above 7, this will likely be an “indication they are ready for the renminbi weakening phase,” said Stephen Gallo, forex strategist at BMO Capital Markets.

The small rebound in the Chinese currency shifted investors’ focus away from safe-haven currencies, pushing the Japanese yen and Swiss franc lower.

The yen was last down by 0.4% at 106.40 to the dollar, pulling back from a 16-month high of 105.52 it reached overnight excluding the January flash crash. The franc was 0.1% weaker, bouncing off a 25-month high it reached on Monday.

For the first time in more than a decade China on Monday let its currency break through 7, a key support level, in a sign that Beijing might be willing to tolerate more currency weakness as Washington threatens to impose more tariffs.

That prompted the U.S. Treasury Department to say for the first time since 1994 that China was manipulating its currency, taking the trade row into uncharted territory and adding to frenzied selling in global financial markets.

The U.S. decision to label China a manipulator came less than three weeks after the International Monetary Fund said the yuan’s value was in line with China’s economic fundamentals, while the U.S. dollar was overvalued by 6% to 12%.

On Tuesday, China’s official Communist Party newspaper said that the United States was “deliberately destroying international order”. In a further sign of deteriorating ties, China’s commerce ministry announced overnight that Chinese companies had stopped buying U.S. agricultural products in retaliation against Washington’s latest tariff threat.

The U.S.-China trade war escalated last week when President Donald Trump unexpectedly said he would impose 10% tariffs on $300 billion of Chinese imports from Sept. 1., essentially imposing a levy on all Chinese goods coming into the United States. Since then, the yuan lost 3.4% of its value against the greenback in offshore trade.

Some analysts say that China has used this opportunity to let its currency weaken because the yuan should trade lower given how bleak Chinese economic fundamentals are.

China is “using the context of the trade war to justify” a beleaguered yuan, said BMO’s Gallo.

“We focus too much on (the) U.S.-China bilateral trade war and we should be focusing more on the long-term structural issues,” Gallo said. “The bigger issue here is that China’s state-owned enterprises have a lot of debt, are unprofitable and output per worker is in decline… A strong renminbi does not fit into this picture.”

Elsewhere, the euro EUR=EBS was flat at $1.1198 after jumping to an 18-day high against the dollar overnight as the spread between U.S. and German 10-year government bond yields shrunk to its lowest in 1 1/2 years. The index which tracks the dollar against a basket of six major currencies .DXY was also flat at 97.51.

The pound was up 0.5% at $1.2199 GBP=D3, but not too far from the 31-month low it reached last week. Against the euro, sterling hit a new 23-month low on Tuesday of 92.49 EURGBP=D3, but was last up by 0.5% at 91.79 pence.

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