The People's Bank of China allowed the Chinese yuan to depreciate Tuesday by nearly 2 percent against the U.S. dollar - the largest devaluation in two decades, coming amid slower lower economic growth and increased stock market volatility in China, according to CNN.
The cental bank's surprising move caused havoc throughout currency markets and is likely to draw criticism from other nations. The U.S. has long accused China of intentionally keeping its currency low, instead of allowing it to move freely in foreign exchange markets. A weak currency makes exports more attractive to international buyers, since it cheapens their price and undercuts competitors.
U.S. stock indices dropped more than 1 percent, while the French CAC and the German DAX dropped 1 percent after the news, according to CNBC.
Investors have been left contemplating the impications of a move designed to support China's slowing economy and exports, but haven't made much headway.
"What is good for growth in China is unfortunately bad for everybody else," Bill McQuaker, co-head of multi-asset at Henderson Global Investors said, according to Yahoo! News.
Companies that sell to China were hit hard as well, with heavy equipment maker Caterpillar dropping 3.13 percent and Germany's Volkswagen dropping 4 percent.
Now, if other nations in the region opt to to devalue their currency in response, it could lead to competitive devaluation, also known as a "currency war" - which is precisely what some analysts believe was China's intention.
Amidst all the turmoil, Greece, which has reached a deal on the country's final fiscal targets, outperformed the rest of Europe, gaining close to 2 percent.
