Markets widely interpreted Yi Gang's reported comments as a sign that authorities will tolerate more slippage in the yuan, but the central bank set a stronger-than-expected official midpoint on Monday, curbing losses in morning trade.
"The trade war would have a temporary depreciation pressure on renminbi, but you see, after the noise, renminbi will continue to be very stable and relatively strong compared to emerging market currencies, even compared to convertible currencies," Bloomberg quoted Yi as saying on Friday, where he used the yuan's official name.
Yi also said no "numerical number" for the exchange rate was more important than another, as the yuan neared the key psychological support level of 7 to the dollar.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8925 per dollar, 20 pips or 0.03 percent firmer than the previous fix of 6.8945.
Monday's guidance rate came in higher than market consensus, similar to fixings seen in past weeks. It was 31 pips firmer than Reuters estimate of 6.8956 per dollar.
In the spot market, the onshore yuan opened at 6.9210 per dollar and fell to a low of 6.9366 per dollar, the weakest level since Nov.30.
As of midday, it was changing hands at 6.9336, 218 pips weaker than the previous late session close and 0.60 percent away from the midpoint.
The offshore yuan traded at 6.9522 at midday. It weakened to a low of 6.9619 after Yi's remarks on Friday, when onshore markets were closed for the Dragon Boat Festival.
"I think policymakers are testing market reaction," said one trader at a Chinese bank. "If the market is not overly panicked, some weakness in the yuan is acceptable, if it's needed for the trade war."
Tommy Xie, head of Greater China research, said China may continue to control the pace of yuan depreciation before a G20 summit in Japan later this month where Chinese President Xi Jinping could meet his US counterpart Donald Trump.
"Nevertheless, the tail risk for RMB to eventually break 7 is getting higher. For this week, markets will closely watch out for the daily RMB fixings to gauge whether there is any possible shift," he said.
A second trader at a Chinese bank said the widening gap between onshore and offshore yuan could make authorities uncomfortable, prompting them to take further steps to curb yuan losses offshore.
The onshore spot rate is allowed to trade with a range 2 percent above or below the official fixing on any given day, but there is no such restriction on offshore yuan.
The PBOC said last month that it will issue more yuan-denominated bills in Hong Kong in the near future, in a move analysts said was designed to tighten offshore liquidity to stabilise the weakening currency.
But the central bank has not yet announced the details for the auction.
Trade and FX reserve data had little impact on the yuan in the morning, traders said. Still, the biggest import drop in nearly three years reinforced expectations that Beijing will need to roll out more economic stimulus measures.
In global markets, the dollar index rose to 96.774 as of midday from the previous close of 96.544.