Because of China's tightly managed currency policy, the yuan usually swings in a wafer-thin range, but implied volatility has fallen to the lowest levels in 20 months as cautious traders watch the trade talks enter their endgame.
Implied volatility in yuan options, which gauges investors' expectations for swings in the dollar against the yuan, fell to multi-month lows. One-month and three-month contracts both hit their lowest levels since August 2017.
China said on Thursday that both sides were working "at full speed" on the negotiations, while US Treasury Secretary Steven Mnuchin said on Wednesday that Washington and Beijing have largely agreed on a mechanism to police any trade agreement they reach, which has been seen as a major sticking point.
Prior to the market opening on Friday, the People's Bank of China (PBOC) set the midpoint rate at 6.722 per dollar prior to market open, 132 pips or 0.2 percent weaker than the previous fix of 6.7088.
In the spot market, onshore yuan opened at 6.7210 per dollar and was changing hands at 6.7190 at midday, unchanged from the previous late session close.
If the onshore spot yuan finishes the late night session at the midday level, it would have lost a marginal 0.2 percent for the week.
Spot yuan traded in a thin range of about 50 pips on Friday morning. And trading volume stood at $12.185 billion as of midday, compared with a normal half-day volume of about $15 billion.
Traders are also awaiting a raft of Chinese data to get a better picture of the cooling economy, with March trade numbers and loan growth expected on Friday afternoon and March activity data and first-quarter GDP on Wednesday.
Business surveys have suggested manufacturing may be steadying in response to a host of government stimulus measures, but analysts do not expect the broader economy to convincingly stabilise until around mid-year.
Bill Zhou, analyst at China Construction Bank (Asia) in Hong Kong said market will likely seek more clues from the economic data to gauge whether Chinese economy had stabilised.
The global dollar index fell to 96.988 at midday, from the previous close of 97.177. The offshore yuan was trading at 6.7265 per dollar as of midday.