The dollar advanced on Tuesday to its highest level of 2018 against a basket of currencies on safe-haven buying, as investors worried about the fate of the Iran nuclear deal and political turmoil in Italy.
Recent data showing Europe's economic growth was slowing caused traders to cut bullish bets on euro and to scale back their outlook for European interest rate hikes in 2019.
"The top focus point today is with Iran. There's also a political wind blowing across Europe," said Joe Manimbo, senior market analyst at Western Union Business Solutions in Washington. "Everything is pointing to further strengthen the dollar."
U.S. President Donald Trump is expected to make an announcement at 2 p.m. (1800 GMT) on the nuclear deal, which eased economic sanctions in exchange for Tehran limiting its nuclear program. Commodity-linked and emerging market currencies slid on worries about a possible U.S. withdrawal, which would hit risk appetite in financial markets.
The dollar index had been down year to date but in three weeks it has gained over 4 percent, erasing that loss. Expectations for more U.S. interest rate hikes from the Federal Reserve have underpinned the dollar's rebound despite soft U.S. domestic data, analysts said. Thursday's U.S. consumer price index for April should show whether inflation is approaching the Fed's 2 percent goal.
"We have to wait for the inflation data which would be telling for the dollar," Manimbo said.