The US Treasury said Tuesday that China cannot be ruled a manipulator of its currency despite the yuan's sharp slide since January.
But the Treasury warned that the recent fall could "raise particularly serious concerns" if it represents a reversal in Beijing's commitment to a more free-floating yuan.
In a twice-yearly report to Congress, which would set sanctions on any country officially branded a "manipulator," the Treasury said the yuan, or renminbi (RMB), "remains significantly undervalued" and that market pressures suggest it could easily move upward if trade in it were more free.
"China has continued large-scale purchases of foreign exchange in the first quarter of this year, despite having accumulated $3.8 trillion in reserves, which are excessive by any measure. This suggests continued actions to impede market determination," the report said.
The Treasury also singled out South Korea for criticism over its heavy intervention on behalf of the won and the country's dependence on exports.
Although Seoul has not published any data on its management of the won, "during the second half of 2013, the Korean authorities are believed to have intervened to limit the pace of won appreciation," The Treasury said.
"Korean authorities should limit foreign exchange intervention to the exceptional circumstances of disorderly market conditions and increase the transparency of their interventions in foreign exchange."
In the report, the Treasury continued its push against the Asian export powers to rebalance their economies to depend more on domestic spending.
"RMB appreciation continues to be critical if China is to meet its goals of rebalancing the Chinese economy and ensuring stable growth," it said.
In Japan, the yen is free-floating and the government has not intervened for two years, but the Treasury said it "will continue to closely monitor Japan's policies and the extent to which they support the growth of domestic demand."
It noted that South Korea intervenes on both sides of the market, but "on net, they have intervened more aggressively to resist won appreciation."
Seoul has laid out plans to reduce dependence on exports. "Exchange rate appreciation is an important tool for supporting this rebalancing," the Treasury said.
The Congress, in attempt to pressure China and other countries that run chronic trade surpluses with the United States, has mandated the Treasury to determine if a country deliberately manipulates its currency to gain trade advantage.
If so, the US would have to apply sanctions against that country.