The dollar was steady on Tuesday and the yen stayed near three-weeks lows, as investors remained optimistic about progress toward a COVID-19 vaccine and the currency markets digested Monday's big moves.
U.S. drugmaker Pfizer Inc and German partner BioNTech SE said on Monday a large-scale clinical trial showed their vaccine was more than 90% effective in preventing COVID-19 - news which drove renewed appetite for risk that lifted global markets.
The dollar's rise on Monday of 0.5%, analysts said, was caused by investors quitting long positions in other major safe-haven currencies such as the Japanese yen and the Swiss franc.
The dollar was flat against a basket of major currencies, near its previous session's highs, as market participants declined to push it further in light of uncertainty about how or when a vaccine could be rolled out.
U.S. Treasury yields held their Monday increases, and the spread between two-year and 10-year notes widened slightly, in choppy trading. Major U.S. and European stock indexes at midday Eastern Time were also holding steady with most of their gains from Monday.
"Today is a little bit of a cool-off from what we've seen in this past couple of days," said Minh Trang, senior FX trader at Silicon Valley Bank. "I don't mind a little bit of a breather. November has been very, very interesting."
Neil Jones, head of FX sales for financial institutions at Mizuho, said he expected the risk-on moves to hold. "We need more clarity in terms of the distribution, quantities, timeline, and to whom," Jones said."On balance, that optimism will remain for now."
The dollar had lost around 1.4% this month until Democrat Joe Biden's victory in the U.S. presidential election became apparent over the weekend.
The Japanese yen, which had its biggest one-day fall since March after the vaccine announcement, was little changed Tuesday at 105.28 yen to the dollar. The yen had initially clawed back some of its losses from the day before.
The Swiss franc gained marginally, with the dollar rising 0.1% to 0.914 franc after Monday's 1.5% gain.
"Following a euphoric market reaction such as that, the question that now arises is whether it was justified or possibly exaggerated," wrote Commerzbank FX and EM analyst You-Na Park-Heger in a note to clients.
Possible catalysts for future changes in exchange rates include new talks in Washington on another round of government spending to stimulate the economy, said Trang of Silicon Valley Bank.
"That's the next topic that most people will be focusing on in the next six months," he said.
Senate Majority Leader Mitch McConnell said on Tuesday afternoon that he did not see a need for a giant coronavirus relief bill. "It seems to me that snag that hung us up for months is still there," the Republican told reporters.
Euro-dollar was broadly flat at $1.1823. In the previous session, it rose to as high as $1.192, but went no further, which Mizuho's Jones said could be due to the European Central Bank having signaled its awareness of the downsides of rapid euro strength.
The Australian dollar - seen as a liquid proxy for risk appetite - was flat, holding gains it made in the immediate aftermath of the vaccine news.
The New Zealand dollar was up 0.2% and poised to extend to eight days its streak of consecutive session of gains.
China's offshore yuan, which has been gradually strengthening since May, was up slightly on Tuesday after hitting 2-1/2-year highs versus the U.S. dollar on Monday..