President Donald Trump and China's President Xi Jinping (not shown) make a joint statement at the Great Hall of the People on November 9, 2017 in Beijing, China.

A senior official of China's central bank told a briefing on Tuesday that the yuan's exchange rate is set by the market, rebutting President Donald Trump's claim a day earlier that the country was manipulating its currency.

China is not manipulating the yuan, the official, Li Bo, is quoted as saying in a report in the South China Morning Post. He told reporters in Beijing that the country would not use its currency as a weapon in a trade war.

"We won't use policy to devalue the yuan and we won't use the exchange rate as a weapon to react to external pressures from trade conflicts," the report quotes Li as saying. Li, who did not name Trump directly, is director of monetary policy at the People's Bank of China.

On Monday, Trump told reporters from Reuters in an interview that China was manipulating the yuan lower to make up for tariffs imposed by the U.S. on its goods. "I think China's manipulating their currency, absolutely," he said.

The yuan has fallen sharply against the dollar as the trade war between the two nations escalated this summer. Earlier this month, the dollar was trading at nearly 7 against the yuan, a level not seen in a decade. On Tuesday, the dollar/yuan trade was 6.86. The dollar has strengthened as the Federal Reserve raises interest rates.

Trump has accused China of currency manipulation in the past. A weaker currency makes a country's goods more attractive to overseas buyers, so forcibly pushing it down would offset any effects from tariffs imposed by others.

In an interview with CNBC in July, Trump said China's "currency is dropping like a rock, and our currency is going up, and I have to tell you it puts us at a disadvantage."

A weakening currency also has a downside: capital flight out of the country, something China has been trying to stop.

Chinese officials are expected to be in Washington later this week to renew trade talks with the U.S. as fresh U.S. tariffs on $16 billion of Chinese goods are supposed to kick in Thursday. China has pledged to retaliate.

Read the South China Morning Post story here.