US President Donald Trump, on a state visit to the UK, is expected to warn his hosts on Tuesday that security cooperation with Washington could be hurt if London allows China's Huawei a role in building parts of the 5G network, the next generation of cellular technology.
On Monday, the US Trade Representative's office accused China of pursuing a "blame game" in recent public statements and a weekend white paper that misrepresented the trade negotiations between the world's two largest economies.
Weighing on already-strained relations, China warned students and academics on Monday about risks involved in studying in the United States, pointing to limits on the duration of visas and visa refusals.
Trump and Chinese President Xi Jinping are due to meet at the G20 meeting in Japan in late-June.
The pair are expected to hammer out an agreement to end or de-escalate trade tensions.
Spot yuan was changing hands at 6.9080 at 0658 GMT, 50 pips weaker than the previous late session close and 0.37 percent softer than the midpoint.
The yuan traded in a tight range of 117 basis points on Tuesday.
"There's not much of a trend right now. We see the yuan trading between approximately 6.9 and 6.92 before the summit," said a Shanghai-based trader at a Chinese bank.
Mizuho, making a similar observation, sees the currency "in the range trading mode gyrating at 6.9 handle," the bank said in a note on Tuesday.
Claudio Piron, a strategist at Bank of America Merrill Lynch, cautioned that weakening the yuan to offset the impact of US tariffs is still on the cards, despite Chinese officials' apparent rejection of the idea.
"If a trade deal fails to materialise, CNY depreciation would be a viable and attractive policy option," Piron wrote in a note on Tuesday.
Prior to Tuesday's open, the PBOC set the midpoint rate at 6.8822 per dollar, firmer than the previous fix of 6.8896.
The fixing is the central bank's main tool to stabilise spot yuan, Iris Pang, economist for Greater China at ING, said in a note on Monday evening.
She added that China will unlikely let the yuan slip below 7 per dollar, which could lead to "a depreciation of 1.33% in a single day" and "considerable turmoil in onshore asset markets."
In the offshore market, the global dollar index fell to 97.094 as of 0685 GMT, from the previous close of 97.142.
Faltering US bond yields amid heightening expectations for a rate cut in the United States, coupled with steady onshore yuan interest rates, helped drive dollar-yuan swap points - the interest rate differential between the two currencies - higher in recent sessions, traders said.
Onshore one-year yuan swap points moved near their 11-month high on Tuesday, while offshore points stayed close to their six-and-a-half month high, though both eased slightly from the previous close.
US Treasury yields hovered at recent lows after St.
Louis Fed president James Bullard on Monday said an interest rate cut "may be warranted soon" given risks to global growth posed by trade tensions and weak US inflation.
The offshore yuan was trading 0.21 percent weaker than the onshore spot at 6.9225 per dollar as of 0658 GMT.