SHANGHAI: China’s yuan held steady on Thursday, while its offshore counterpart firmed against a softening US dollar, as investors bet the widening of bond yields between China and the US may come to an end after the US Federal Reserve meeting.

Overnight, the Fed kept policy rate unchanged, while markets thought the Fed Chair was not quite as hawkish as he might have been, reducing the odds on further rate hikes. The global dollar index fell to 106.341 from the previous close of 106.884.

The yield gap between 10-year China government bond and US treasury narrowed 15 basis points (bps) to 202 bps on Thursday.

Prior to the market’s opening, the People’s Bank of China (PBOC) set the midpoint rate, around which the yuan is allowed to trade in a 2% band, at 7.1797 per US dollar, weakest level since October 16.

The PBOC is using the broad dollar softness to readjust the fix back towards market rates, UBS analysts said.

The spot yuan opened at 7.3123 per dollar and was changing hands at 7.3176 at midday, only 3 pips weaker than the previous late session close and 1.92% away from the midpoint.