Investing.com - The dollar held onto modest gains against other major currencies on Wednesday, just off a three-year low as the euro finally gave back some strength, although U.S. political concerns were expected to limit gains.
Market participants were focusing on the risk of a potential U.S. government shutdown on Saturday.
Fresh political tensions in Washington surfaced after comments by President Donald Trump on immigration dampened the prospects that a broad spending and immigration deal can be reached by the end of the week, raising the possibility of a government shutdown.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.12% at 90.34 by 05:15 a.m. ET (09:15 GMT), after hitting a fresh three-year trough of 89.98 overnight.
The euro was lower, with EUR/USD down 0.15% at 1.2241, off Monday's three-year peak of 1.2296, while GBP/USD held steady at 1.3799.
The dollar has been pressured lower by concerns the global economic recovery will outpace U.S. growth and prompt other major central banks, led by the European Central Bank to begin unwinding loose monetary policy at a faster pace than expected.
Expectations that the ECB could soon start to scale back its monetary stimulus program received a boost on Monday after ECB Governing Council member Ardo Hansson said bond purchases could end in one step in September if the economy and inflation develop as expected.
Earlier Wednesday, revised data showed that euro zone inflation eased in line with expectations in December.
The yen and the Swiss franc were weaker, with USD/JPY up 0.25% at 110.74 and with USD/CHF gaining 0.32% to 0.9626.
Elsewhere, the Australian dollar was higher, with AUD/USD up 0.25% at 0.7981, while NZD/USD was little changed at 0.7272.
Meanwhile, USD/CAD edged up 0.09% to 1.2445, as traders were awaiting the Bank of Canada's interest rate decision due later in the day.