The dollar rallied against the euro for the fifth consecutive session on Tuesday to an 11-week high, according to Reuters data, as rising U.S. Treasury yields lured investors.
With few major U.S. economic indicators on Tuesday, dealers stuck to buying dollars based on the recent advantage of U.S. government bond yields over other government debt, a trade some analysts said could be close to running its course even as the benchmark U.S. Treasury yield climbed to a five-year high.
The dollar's getting support from Treasury yields, said Ron Simpson, director of currency research at Action Economics in Tampa, Florida. But we're waiting for U.S. retail sales, CPI and PPI later in the week which may determine the dollar's direction.
In late afternoon trading, the euro was down 0.4 percent from late Monday at $1.3311, near its session low of 1.3309 -- the pair's lowest level since March 30.
Against the Japanese yen, the dollar was little changed at 121.70 yen, near a 4-1/2-year high around 122.20 yen hit in January.
The greenback also hit a 3-1/2-month high at 1.2431 Swiss francs while the dollar index touched a two-month peak.
Expectations of a near-term cut in U.S. interest rates have faded, sending bond yields higher. For more on bond yields, click [ID:nN12289493]
This, coupled with continued concerns about inflationary pressures voiced by Federal Reserve policy-makers, has supported the dollar.
Some analysts cautioned that views on the dollar could change, depending on what information is gleaned on Wednesday from the U.S. retail sales report for May. The U.S. producer price index for May will be released on Thursday, with the U.S. consumer price index for May released on Friday.
Investors will also be watching the U.S. Treasury's semiannual Report on International Economic and Exchange Rate Policies on Wednesday, for any comments on China's yuan.
The yuan on Tuesday posted its largest gain against the dollar since its July 2005 revaluation, rebounding from a three-day slide after the central bank set a much higher reference rate for the Chinese currency. For more details, click [ID:nSHA167279]
U.S. policy-makers have argued that China's managed currency policy artificially weakens the yuan, favors Chinese exports and widens the U.S. trade gap. While the Treasury report is not expected to label China a currency manipulator, investors may remain cautious ahead of the report.
Investors will also closely monitor the unveiling of a bill in the Senate on Wednesday that would allow the U.S. to impose penalties on countries setting their currencies artificially low.
PLAYING SAFE WITH KIWI
The New Zealand dollar was down 0.1 percent against the U.S. dollar after the Reserve Bank of New Zealand intervened in the market and weakened its currency for the first time since the kiwi was floated in 1985.
The RBNZ's intervention has not dented investor focus on reaching for higher yields and rewarding currencies where interest rates are likely headed higher.
Monday's RBNZ selling helped to drive the New Zealand dollar down as much as 2 percent to a low of $0.7461. On Tuesday, the New Zealand dollar was at US$0.7506, still up 6.6 percent in the year-to-dat
With the focus on yields, sterling rose broadly after Bank of England Governor Mervyn King said UK rates may need to rise again if capacity pressures, pricing intentions and inflation expectations remain elevated. But the pound's gains were capped by slightly softer-than-expected May inflation data.
The British pound edged up 0.3 percent to $1.9750.