TOKYO: The dollar slipped from close to its highest in nearly one month on Tuesday as caution set in before US Treasury Secretary nominee Janet Yellen testifies later, with traders keeping a close eye on the policies of the incoming Joe Biden government.

The greenback weakened against most major peers as stocks in Asia rallied, lifting risk sentiment and curbing demand for safe-haven currencies like the dollar and Japanese yen.

The dollar index slipped about 0.1% to 90.708 in the Asian session, a day before US President-elect Joe Biden is set to be inaugurated.

On Monday, the gauge ended 0.1% lower after earlier climbing to 90.94 for the first time since Dec. 21, as the Wall Street Journal reported Yellen will affirm a more traditional commitment to market-set currency rates in a Senate testimony on Tuesday.

That's in stark contrast to outgoing President Donald Trump, who often railed against dollar strength.

The greenback has started the year with a near 2% rally against major peers, supported by a rise US Treasury yields in response to Biden's plan for a $1.9 trillion pandemic relief package.

The dollar fell close to 7% last year on expectations US monetary policy would stay ultra-loose and amid hopes for a post-pandemic global recovery.

Many analysts expect the dollar to resume its march lower this year.

"We've seen comments from Janet Yellen that she won't be pursuing a weak dollar policy per se, but that doesn't mean that the overall impact of Fed policy won't keep the dollar weakening," said Michael McCarthy, chief strategist at broker CMC Markets in Sydney.

"I suspect what we've been seeing in the dollar at the moment is a minor corrective rally in an overall downtrend."

The greenback has also been supported recently by an unwinding of bearish bets, with data showing that hedge funds piled up the biggest net short position since May 2011 in the week ended Jan. 12.

Such large positions suggest that traders would be relatively more inclined to reduce their positions than add to already big bets.

The euro rose 0.2% to $1.2095, after dipping to $1.2054 for the first time since Dec. 2 on Monday, in subdued trading with US markets closed for Martin Luther King Jr. Day.

The riskier Aussie dollar rose 0.3% to 77.082 US cents, reversing a decline of more than 0.2% overnight.

The dollar gained 0.3% to 104.05 yen, although still consolidating in a narrow range after reaching a one-month high of 104.40 last week.