The dollar rose to a one-week high against a basket of currencies on Tuesday on speculation that US President Donald Trump was leaning towards nominating a Federal Reserve head who would be more inclined to raise interest rates at a faster pace. The greenback was also supported by US two-year Treasury yields hitting nine-year highs on Tuesday. Yields climbed as well on growing expectations that Trump favoured Stanford economist John Taylor to head the US central bank.
"Taylor is perceived as more hawkish than Ms. (Janet) Yellen so under his potential tutelage, the central bank might lift borrowing rates more aggressively, which would bolster the dollar's allure," said Joe Manimbo, senior marker analyst, at Western Union Business Solutions in Washington. The dollar index, which measures the greenback against a basket of six major peers, rose on the report hit a one-week high of 93.737.
The index was last up 0.4 percent at 93.695. MUFG currency economist Lee Hardman, in London, said the bank would "not be surprised" to see an initial jump in the dollar of between 3 percent and 5 percent should Taylor be chosen. Knocked by a stronger dollar, the euro slipped to a one-week low of $1.1756, having fallen almost 3 percent since hitting a 2-1/2-year high last month. The euro was last down 0.4 percent at $1.1746.
The euro had no reaction to German ZEW economic sentiment data that disappointed expectations in Germany and Europe by coming at 17.6 points, below a forecast of 20.1 points. Markets are wary of chasing the euro lower before a European Central Bank policy meeting next week.
Sterling dropped to $1.32 for the first time in four days on Tuesday, after comments by Bank of England policymakers were interpreted by markets as broadly dovish. The greenback was up 0.2 percent at 112.38 yen after rising 0.3 percent late on Monday, when it pulled away from a three-week low of 111.64 yen.