A tariff truce between the U.S. and Chinese has helped to set a floor for the yuan, according to analysts at UBS.

In a note to clients, the brokerage argued that a recent trade agreement between the world’s two largest economies in London has "put a floor" under the currency, adding that both sides have retained "key bargaining chips."

They noted that, since early May, the amount of yuan bought by one U.S. dollar has gradually been moving lower.

Improving inflows of foreign currencies into the yuan, alongside a stronger daily fixing rate from the People’s Bank of China, are signs of Beijing’s comfort with this firmer yuan and "support the outlook" for its "gradual appreciation," the analysts said.

Still, they flagged that this strengthening is likely to be "closely managed" as China’s government grapples with ongoing risks from "slowing export growth, [...] deflationary pressures, and muted domestic demand."

Earlier this month, the U.S. and China ended a marathon session of talks in London with an agreement on a framework to put their trade detente back on track. The announcement helped to soothe some market nerves after the two countries entered a spat over a trade deal previously forged in Geneva in mid-May.

The UBS analysts said, following the London gathering, they now expect the U.S. dollar-Chinese yuan pair to possibly reach 7.15 by the end of 2025 and 7.00 by the middle of 2026, "assuming the tariff truce holds" and the greenback’s recent weakening continues. The USD/CNY pair was last trading at 7.1746.