SHANGHAI: China's yuan slipped on Wednesday as Sino-US tensions weighed on risk appetite, defying central bank attempts to guide it higher and despite the dollar index holding near a 2-1/2-month low.

The People's Bank of China set the midpoint rate at 6.4255 per dollar prior to market open, 102 pips firmer than the previous fix of 6.4357.

However, the spot market opened at 6.4250 per dollar and was changing hands at 6.4278 at midday, 28 pips weaker than the previous late session close.

The offshore yuan was trading at 6.4272 per dollar.

A trader at a foreign bank said the onshore yuan would probably trade in a range of 6.41 to 6.46 per dollar in the near-term, adding the US Federal Reserve could taper earlier than expected if inflation speeds up.

Also souring sentiment toward the yuan were tensions between Beijing and Washington after a US warship sailed through the sensitive waterway that separates Taiwan from China.

US House of Representatives Speaker Nancy Pelosi on Tuesday called for a diplomatic boycott of the 2022 Winter Olympics in Beijing, criticising China for human rights abuses.

The minutes from the Fed's most recent meeting due later on Wednesday are expected to confirm that policymakers think a rate hike is still in the distance.

The global dollar index fell to 89.778 from the previous close of 89.802, close to the lowest since late February.

Inflation expectations still have a bearing on the yuan via the dollar index and the changes in China's monetary and credit conditions. The Chinese currency in the second or third quarters is expected to reach its peak for the current appreciation cycle, CIB Research said in a note.

The Fed could hint at tapering again in the second half, which could then push the dollar index and Treasury yields higher, CIB added.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 97.31, weaker than the previous day's 97.35.

Offshore one-year non-deliverable forwards contracts (NDFs), considered the best available proxy for forward-looking market expectations of the yuan's value, traded at 6.5895, 2.49% away from the midpoint.

One-year NDFs are settled against the midpoint, not the spot rate.