This was seen by many as retaliation against new 10% tariffs imposed on Chinese by the Trump administration.
Relations have soured further in the past week after Mr Trump announced a new round of punitive tariffs on Chinese goods, despite a truce agreed with Chinese President Xi Jinping in May, and Beijing responded by halting all purchases of USA agricultural goods.
"Further weakness would send a signal that China wants to start a currency war, which we strongly believe is not the case because this would do little to benefit the Chinese economy as other Asian currencies would just weaken along with the yuan".
"Uncertainty is what we have", Carone said. "We have all the cards".
"They have called it wrong at every step of the way, and we are still winning", Trump lashed out at the Fed. "You have China right now, where we're really concerned with this trade deal". Shares recovered somewhat but still closed in the red.
Trump rattled investors with last week's surprise announcement of punitive tariffs on an additional $300 billion of Chinese imports, effective September 1. China has allowed letting its currency go down, and it has reached the lowest level in more than a decade.
China's yuan inched down against the dollar on Friday as nervous traders awaited Beijing and Washington's next moves in their bruising tariff dispute, but markets were generally calmer after a sharp slide early in the week sparked fears of a global currency war.
"By and large, the market has digested this", said one trader in Shanghai with a foreign bank. A wider yield gap could mean less capital outflow pressure from China and is supportive for the Chinese currency.
In a series of tweets on Thursday, Mr Trump lamented the strength of the U.S. dollar which puts American manufacturers at a disadvantage, and once again demanded the Federal Reserve lower interest rates to counteract that. A Reuters poll published on Friday said economists see interest rates being cut for a fifth straight Reserve Bank of India meeting in October.
The Fed raised the benchmark USA interest rate four times a year ago, a total of a full percentage point, but pulled back with a rate cut last week.
The yuan was trading at 7.0435 in mid-afternoon, but that was stronger than the previous day's level.