The dollar retreated slightly on Tuesday but held most of its 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.

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.

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.