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Some positive dollar news this week in the form of a potential
new hawkish U.S. Federal Reserve chair and the slow progress of
U.S. tax reforms has also helped the dollar rise to a one-week
high in the previous session.
"There is a nervousness squeeze on USD shorts underway related
to Fed chair uncertainty, so medium-term USD sellers are being
forced to stand aside," said Stephen Gallo, European head of FX
strategy at BMO financial group.
The dollar index <.DXY> rose 0.2 percent to 93.70, extending a
rebound from Friday's 2 1/2-week low of 92.749. Including
Wednesday, it has risen for five consecutive sessions.
U.S. Senate Republicans on Monday gained crucial support for a
vote on a budget resolution that is vital to President Donald
Trump's hopes of signing tax reform legislation into law before
January.
"The overnight news of progress in negotiations over the new
U.S. tax plan seems to be dollar-positive but we have to see
some strong economic data before the dollar breaks higher," said
Jane Foley, senior FX strategist at Rabobank.
Investors will also focus on U.S. Beige Book data later in the
day, with some likely to be wary of buying dollars aggressively
after disappointing U.S. inflation data.
With the Federal Reserve expected to raise interest rates for
the third time this year in December, markets are looking to who
will replace Janet Yellen as chair when her term expires in
February.
Selling the dollar has been a consensus favorite trade,
especially against the euro this year in currency markets as
investors have focused on the diverging economic fortunes
between the world's two major developed economies.
Two-year U.S. Treasury yields were holding near a nine-year high
of 1.56 percent, creating a squeeze on bearish bets against the
dollar which have remained near record highs. [US/]
The dollar's gains have deepened losses on the euro, which has
broken below the $1.1750 line.
(Reporting by Fanny Potkin and Saikat Chatterjee; Editing by
Gareth Jones)
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