SHANGHAI: China's yuan inched higher against the dollar on Tuesday, as talks between senior Chinese and and US officials sparked hopes of an improvement in trade ties, including possible tariff reductions.

China's Vice Premier Liu He spoke with US Treasury Secretary Janet Yellen on Oct. 26 via video call and talked about the macroeconomic situation and bilateral relations, according to China's commerce ministry.

The official readouts of the call from both sides encouraged traders and analysts to hope tensions would ease between the world's two largest economies, raising chances for possible cuts to tariffs that were raised at the height of the US-China trade war.

"It could also show that inflation pressure was getting too high in the United States, reducing tariffs could benefit them too," said Ken Cheung, chief Asian FX strategist at Mizuho Bank in Hong Kong.

China's yuan eases after regulator warn of possible actions to counter higher fluctuations

Prior to market opening, the People's Bank of China (PBOC) set the midpoint rate at 6.389 per dollar, 34 pips or 0.05% firmer than the previous fix of 6.3924.

In the spot market, onshore yuan opened at 6.3845 per dollar and was changing hands at 6.3830 at midday, 26 pips firmer than the previous late session close.

Despite glimmersof optimism over Sino-US relations, traders said it would be hard to see the yuan quickly rising past the key 6.35 per dollar mark, the strongest level the Chinese currency hit this year.

"The yuan probably won't have continued appreciation before a substantial cut to the tariffs," said a trader at a foreign bank.

Separately, investors will pay attention to central bank meetings include European Central Bank (ECB) and Japan for possible policy guidance that could affect major currencies in global markets.

By midday, the broad dollar index rose to 93.892 from the previous close of 93.842, while the offshore yuan was trading at 6.3815 per dollar.