The dollar held on to modest gains near a 2 1/2-month high against a basket of major currencies on Tuesday, supported by worries about an escalation of the Sino-US trade war and more signs the United States economy is outperforming its peers. The dollar index, which measures the greenback against six major currencies, was 0.25 percent higher at 96.823. Earlier in the session, the index hit a high of 96.948, its strongest since mid-August.
"It's a bunch of things coming together at once to support the dollar," said Brad Bechtel, managing director FX at Jefferies, in New York. Weakness among Asian exporters related to concerns about trade and global growth, worries about slowing European growth and political uncertainties in Germany and Italy were behind the dollar's recent outperformance, Bechtel said.
On Monday, US President Donald Trump said he thought there would be "a great deal" with China on trade, but warned he had billions of dollars worth of new tariffs ready to be implemented if a deal wasn't possible. With concerns about an escalating trade war and a Chinese economic slowdown mounting, the yuan hit a 22-month low in offshore markets.
The Australian and New Zealand dollars jumped on Tuesday as investors picked up risky assets although analysts warned any rally is likely to be short-lived amid simmering global trade tensions. The euro, which weakened on Monday on news German Chancellor Angela Merkel would not be seeking re-election as head of the Christian Democrats party, was 0.08 percent lower against the dollar.
The greenback was 0.36 percent higher against the Japanese yen, as traders prepared for a Bank of Japan monetary policy meeting due Wednesday. Sterling languished at a ten-week low as concern about Britain's departure from the EU led investors to largely ignore hopes of an end to austerity raised by Britain's finance minister Philip Hammond.