SHANGHAI: China's yuan weakened against the US dollar on Monday, dragged lower by strength in the greenback in overseas market even as the central bank set firmer guidance for the Chinese currency.

The dollar gained some support from a slide in the euro following political uncertainty as talks among four German parties seeking to form a coalition government broke down.

Prior to market opening on Monday, the People's Bank of China (PBOC) set the midpoint rate at 6.6271 per dollar, slightly firmer than the previous fix 6.6277.

Traders said Monday's fixing largely matched their expectations.

But the stronger fixing failed to guide spot yuan higher. The onshore yuan opened at 6.6330 per dollar and was changing hands at 6.6346 at midday, 61 pips weaker than the previous late session close and 0.11 percent softer than the midpoint.

Traders said the market expected the yuan to be rangebound amid less pressure from seasonal corporate demand for the greenback. On Monday morning, the yuan was mainly tracking the dollar's moves in global markets.

"Post-19th Party Congress and Trump's visit to China, RMB became less event-driven and more market-oriented. This means that RMB will continue its two way movement between 6.5-6.7 (per dollar), in line with the broad performance of the USD," Tommy Xie, economist at OCBC Bank in Singapore wrote in a note on Monday.

The PBOC said in its third-quarter monetary policy report published late on Friday that it would keep the yuan stable while increasing the currency's two-way flexibility.

The central bank added that it would deepen market-based foreign exchange reforms.

Separately, the onshore yuan strengthened around 0.19 percent against the dollar last week, but on a trade-weighted basis it edged down about 0.37 percent against a basket of currencies of trading partners in the same period, according to official data from the China Foreign Exchange Trade System (CFETS).

The index, published on a weekly basis, stood at 94.7 on Friday.

The Thomson Reuters/HKEX Global CNH index, which tracks the offshore yuan against a basket of currencies on a daily basis, stood at 95.26, firmer than the previous day's 95.24.

The global dollar index rose to 93.974 from the previous close of 93.662.

The offshore yuan was trading 0.09 percent weaker than the onshore spot at 6.6407 per dollar.

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 6.7885, 2.38 percent weaker than the midpoint.

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