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US dollar firmer vs yen, euro with outlook seen positive still

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Mark Wilson | Getty Images

The U.S. dollar firmed against the yen and euro on Tuesday, after several days of losses in the wake of President Donald Trump's inaugural speech promising more trade protectionism, with the U.S. economic outlook still seen better than that of Europe or Japan.

"When you take the spotlight more toward Europe and Britain and Brexit, you start looking at the dollar as a better long-term option," said Juan Perez, currency trader at Tempus Consulting in Washington.

"But the market is still on a roller-coaster. We're still seeing a lot of pandemonium in Washington in terms of protests."

Perez added that investors are worried about President Donald Trump's plan to renegotiate the North American Free Trade Agreement with Mexico and Canada and his abandonment of the Trans Pacific Trade Partnership with Asian countries.

Comments about the need for a weaker U.S. dollar from Trump and U.S. Treasury Secretary Steven Mnuchin were also a concern.

The dollar had soared over 6.0 percent to 14-year highs against a basket of major currencies in the eight weeks following Trump's surprise election victory in November.

Investors bet his promised infrastructure spending and tax cuts would boost economic growth and inflation, leading the Federal Reserve to raise interest rates faster.

After peaking in early January, that rally has stalled for now, with the dollar down 3.5 percent against a basket of major currencies the past three weeks. The dollar index last traded flat at 100.13

Against the yen, the dollar rose 0.6 percent to 113.31 yen on Tuesday.

"Interest rate differentials are providing modest dollar/yen support with the two-year U.S.-Japan yield spread pushing back toward 140 basis points," said Eric Theoret, currency strategist, at Scotiabank in Toronto.

The euro, which had looked as if it was headed toward parity with the dollar at the end of 2016, has recovered above $1.07 and hit seven-week highs of $1.0774 in early Asian trading on Tuesday. By late morning New York trading though, the euro was down marginally at $1.0754.

Sterling, meanwhile, slipped 0.5 percent to $1.2465 after Britain's Supreme Court ruled that the government would need approval from Britain's parliament before formally triggering the country's departure from the European Union.