Traders were also reluctant to take fresh positions ahead of an expected phone call between U.S. and Chinese trade negotiators this week, though a quick resolution of the year-long dispute is seen as highly unlikely.
Prior to the market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.8853 per dollar, 28 pips or 0.04 percent firmer than the previous fix of 6.8881.
In the spot market, yuan opened at 6.8830 per dollar and was changing hands at 6.8824 at midday, only 3 pips firmer than the previous late session close.
The yuan was confined to a tight range of about 60 pips in the morning, with trading volume shrinking to $11.072 billion, compared with a normal half-day volume of about $15 billion.
"Trading conditions remain precariously thin as far as liquidity is concerned so any nugget of news can trigger an outsized move," Stephen Innes, managing partner at Vanguard Markets, said in a note.
Fed Chair Powell's comments in two-day testimony to Congress beginning on Wednesday will be closely watched for clues on the U.S. monetary policy stance.
Strong U.S. job data on Friday has doused market hopes for a 50 basis point rate cut by the Fed at the end of this month, helping to buoy the dollar, but a quarter-point reduction is still being priced in.
If the Fed eases, many China watchers believe the PBOC is likely to follow by lowering one of its key short-term money market rates to support the flagging economy, though some have forecast a more forceful benchmark rate cut.
China is releasing data for June over the coming week, leading up to second-quarter GDP on Monday, which is expected to show the economy is still losing momentum despite a flurry of support measures.
"As long as China still has a tight grip on the economy and the financial markets, there is little chance to see a blow up of CNY any time soon," said Zhou Hao, analyst at Commerzbank in Singapore.
"In addition, a significant CNY appreciation is inconsistent with the weak economic fundamentals. All told, USD/CNY seems to have nowhere to go," he added.
The global dollar index rose to 97.411 at midday from the previous close of 97.384. The offshore yuan was trading at 6.8884 per dollar as of midday.