The dollar retreated slightly on Tuesday but held on to most of the previous session’s gains on lingering optimism over a tariff deal between the United States and China, which tapped the brakes on a trade war between the world's two largest economies.

China’s best choice under the current environment is to keep the yuan stable against the dollar, while allowing it to depreciate against a basket of other currencies, said Wang Jinbin, economics professor at the Renmin University of China. Such a strategy would steady capital flows, while aiding Chinese exports, he said.

The onshore yuan has risen 0.5% so far in May against the dollar and is on track for its best monthly gain since January amid hopes of easing trade tensions with the US.