- On Monday, China's central bank allowed the yuan to slide below the key psychological level of 7 per US dollar for the first time since the 2008 financial crisis.
- The move was seen by many as retaliation for tariffs recently announced by US President Donald Trump - and markets sold off worldwide on concerns over a trade-war escalation.
- Though the seven yuan per dollar threshold is largely arbitrary, China acknowledged its psychological importance in 2016 when it propped up the renminbi in order to stay above the seven level.
- Traders around the world have been closely watching the key level since Monday, and it's only growing in significance as the trade war continues.
- Read more on Markets Insider.
China shocked markets on August 5 by allowing its currency to breach the key level of seven yuan per US dollar for the first time since the 2008 financial crisis.
The move was seen by many as retaliation for tariffs announced by President Donald Trump that are set to go into effect on September 1. Once instated, they'll ensure nearly all Chinese imports are taxed.
Markets reacted violently to the breach, with US equities tumbling to their worst day of 2019. In the bond market, the three-month and 10-year yield curve - an indicator that's viewed as a reliable recession signal - inverted to the largest degree since 2007.
Meanwhile, Trump labeled the currency decline a "major violation" and accused China's central bank of manipulation.
As all of those crosscurrents raged, it became clear that the seven yuan per dollar level was something to be reckoned with. With traders, economists, and central bankers alike now keenly focused on it, the People's Bank of China's daily fix - or where it pegs the yuan versus the dollar - has become the market equivalent of appointment viewing.
We further unpack below why the seven per dollar level is so significant, how a weaker yuan aids China, and why traders have become so transfixed by the foreign currency: