Dollar rises against euro, pound on Fed comments

The euro slipped to $1.5788 in late New York trading, down from the $1.5893 it bought in late Monday trading. The British pound weakened to $1.9920 from $1.9984, while the dollar rose to 107.21 Japanese yen from 106.75 yen.

Charles Plosser, president of the Federal Reserve Bank of Philadelphia and a voting member of the Fed's Open Market Committee, said the Fed will probably need to boost interest rates "sooner rather than later," even if employment and financial conditions haven't improved.

"Inflation is already too high and inconsistent with our goal of--and responsibility to ensure--price stability," Plosser said in a speech to a group assembled by the Philadelphia Business Journal.

A reversal on interest rates "will likely need to begin before either the labor market or the financial markets have completely turned around," he said.

Out of concern about inflation, the Fed in June ended a nearly yearlong string of rate reductions aimed at shoring up the wobbly economy, leaving its key rate at 2 percent.

Higher interest rates can attract investors to a currency as they seek higher returns on investments.

Meanwhile, oil prices tumbled more than $3 a barrel Tuesday as a tropical storm grew increasingly unlikely to threaten supply. It was crude's fourth decline in the last five sessions.

Michael Woolfolk, senior currency strategist at Bank of New York Mellon, said markets are looking towards a business climate index from Germany's Ifo institute, to be released Wednesday, and the Commerce Department's report on durable goods orders at the end of the week.

"The markets aren't looking for anything wonderous to happen, but perhaps the reports could come in modestly better than expected," he said. "Either way, the dollar will stay within the same well-worn ranges it has for some time."