The euro, which rose 0.4% on Monday, eased a tiny bit to $1.1738 and the dollar index, which dropped about 0.5% on Monday, edged up from a one-week low to 93.038.
“A positive risk backdrop has pushed flows out of the dollar,” said Chris Weston, head of research at brokerage Pepperstone in Melbourne, adding that rising stocks and positive analyst comments on oil demand also helped the broad mood.
“But I wouldn’t be going short dollars just because of this … it could easily flip up going in to Jackson Hole,” he added, referring to the Fed’s Friday symposium.
The Japanese yen and Swiss franc both perched just above their 20-day moving averages, with the yen at 109.76 per dollar and the franc at 0.9131 per dollar.
Some traders pointed to Friday remarks from hawkish Fed member Robert Kaplan, who said he might need to adjust his view given the Delta variant’s drag on the economy, as flagging a delay to tapering and adding to pressure on the dollar.
Data on Monday also showed business activity growth in the United States slowed for a third straight month.
Yet Treasuries and Fed funds futures, which track policy expectations, were little moved.
“The market may be using the Kaplan comments as an excuse for profit-taking on the dollar,” said analysts at OCBC Bank in Singapore.
“There has not been a clear shift in Fed expectations … (we) prefer to focus on more sustainable drivers – macro concerns and monetary policy divergence – both of which are favourable to the dollar,” they said, with the dip presenting a buying opportunity.
Besides Jackson Hole, markets are awaiting U.S. housing and manufacturing surveys due later on Tuesday and GDP data on Thursday.
COVID-19 case counts are also being closely watched, especially in China where outbreaks appear to be coming under control and in New Zealand where monetary policy was put on hold last week while the country locks down to contain the Delta variant.
New Zealand recorded its highest daily rise in COVID-19 cases since April 2020, but authorities said it was reassuring that the numbers were not rising exponentially.
The chance of a rate hike in October, which had fallen below 40% on Monday, was even on Tuesday.
“On balance the market seems to be slanting toward the view that NZ will beat Delta, and if that is the case, that should put (interest rate) hikes and carry back on the table later in the year,” said analysts at ANZ Bank.
“The market has seen the kiwi bounce off $0.68 when all the chips were down, and that’ll likely be a solid base of support for now.”
Bitcoin was steady, but unable to hold above $50,000, last buying $49,360.
For a look at all of today’s economic events, check out our economic calendar.
(Reporting by Tom Westbrook; Editing by Sam Holmes and Christopher Cushing)