The dollar moved away from a recent seven-week low versus the euro and firmed against other currencies on Tuesday after Federal Reserve Chairman Ben Bernanke gave upbeat comments on the US economy.
Bernanke said late on Monday the economy should keep growing at a brisk pace even if the housing market slows, but the dollar failed to receive a significant boost as Bernanke offered few new clues on how much more the Fed would raise rates.
Analysts said the market would now be looking to US data due later in the session, including producer price index numbers at 1330 GMT, for further insight.
"There's clearly been a loss of momentum with regard to US rate expectations as markets have started to increasingly look at the possibility of a pause in the not too distant future - we think that has been a tad overdone," Ryan Shea, senior market strategist at State Street Global Markets said.
"We have seen a slight correction helped by the Bernanke comments overnight, but really it will depend on the data in the US Clearly monetary policy there is going to be data-dependent," he added.
The US producer price index is expected to fall 0.2 percent on the month in February. By 1244 GMT, the dollar was up 0.2 percent at $1.2139 per euro, off last week's seven-week low of $1.2207. It was up 0.3 percent at 1.2956 Swiss francs and 116.60 yen.
The Swiss franc dropped to a 2-year low against the euro, hurt by continued expectations that interest rates in Switzerland would remain low for some time. Trading volumes in Asia were thinner than usual with Tokyo markets closed for the Spring equinox holiday. The New Zealand dollar extended recent losses to hit a 21-month low of US $0.6210, bringing its loss this year to nearly 9 percent.
"Obviously the RBNZ (Reserve Bank of New Zealand) has told you it's done hiking rates. The issue going on now is the rate advantage is starting to deteriorate and I think the external backdrop is starting to turn sour," said Jim McCormick, head of foreign exchange research at Lehman Brothers. "It's beginning to get hit from tightening liquidity (in the G3). I would say the Canadian dollar and the pound also have a minor risk from this."
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