Dollar hovers near 6-1/2 month low on US political risks

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The dollar struggled to recover ground against other major currencies on Tuesday as lingering U.S. political risk and strong European data kept the greenback in check.

The dollar index, which tracks the greenback against a basket of six major rivals, was nearly flat on the day at 96.972. The index fell to a more than six month low on Monday, following its worst week of losses in a year.

"The noise around the political situation in the U.S. is keeping a lid on the dollar," said Brad Bechtel, managing director FX at Jefferies in New York.

Worries over U.S. President Donald Trump's recent firing of FBI Director James Comey, who was overseeing a probe into possible links between the president's team and Russia, and concerns about possible delays in Trump's efforts to implement his economic stimulus plans have recently pressured the dollar.

On Tuesday, U.S. Treasury Secretary Steven Mnuchin said while he hopes to get tax reform done this year, it will not happen by August.

The euro was down 0.06 percent against the dollar at $1.1229. The common currency rose as high as $1.1267, its highest since Nov. 9, earlier in the session.

"Europe is increasingly looking better on the data side and you are still getting relief rally related to the French election," Bechtel said.

Businesses across the euro zone maintained April's blistering growth rate this month, a survey showed, and German business morale brightened more than expected in May to hit its highest on record since 1991.

The euro rose on Monday after comments from German leader Angela Merkel, who said a euro that was "too weak" was the cause of Germany's massive trade surplus.

Berlin is likely to hear more grumbling, particularly from a Washington administration that has made noises about the dollar's strength, at a meeting of Group of Seven leaders in Italy this weekend.

Moves on major markets were tight, with the common denominator still a struggling greenback. The dollar was down 0.12 percent against the yen and 0.16 percent weaker against the Swiss franc.

Meanwhile, sterling was up 0.08 percent against the dollar to $1.3008, recovering ground after falling on a suicide bombing in the English city of Manchester and concerns over the ruling Conservative Party's campaign for next month's election putting the currency on the defensive.