The dollar dipped on Tuesday due to a fall in U.S. bond yields after touching a seven-week peak against a basket of currencies, as sterling rose following a report that rekindled hopes that Britain and the European Union are on the brink of a Brexit deal.
Investors dumped U.S. bonds last week on fears that domestic inflation might accelerate, prompting the Federal Reserve to hasten the pace of interest rate hikes.
On Tuesday, the benchmark 10-year Treasury yield climbed to a seven-year high at 3.261 percent before receding to 3.2101 percent on weaker equity prices and worries about global growth.
An index that tracks the dollar versus six major currencies was down 0.1 percent at 95.67 after hitting a seven-week peak at 96.155. The euro was helped by a Dow Jones report that an agreement on the terms for Britain to leave the economic bloc may be reached as soon as Monday.
The single currency had weakened earlier on worries about the tension between the EU and Italy over that country's budget. "That flipped everything around. It salvages the open wounds from the Italian budget negotiations," said Boris Schlossberg, managing director of FX strategy at BK Asset Management in New York said of the Dow Jones report on a Brexit deal by Monday.
Dow Jones, citing unidentified diplomats, said both parties had narrowed their differences around the Irish border but some issues have not been solved. Sterling reversed its earlier drop to rise to $1.3144, up 0.43 percent. Against the euro, it was up 0.36 percent at 87.45 pence per euro.
Earlier, Italian Economy Minister Giovanni Tria struck a resolute tone on his controversial budget plans in Rome's parliament. Italy's benchmark 10-year government bond yield rose toward a 4-1/2-year high. The euro fell to a seven-week low of $1.14325. It was last at $1.15000, up 0.08 percent. The single currency was down 0.1 percent at 129.980 yen.