Investing.com - The dollar was hovering near three-week highs against other major currencies on Tuesday, amid fresh geopolitical tensions between the U.S. and North Korea and despite mixed messages by Federal Reserve officials.
The greenback strengthened after New York Federal Reserve President William Dudley on Monday said the Fed is on track to gradually raise interest rates given factors depressing inflation are "fading" and the U.S. economy's fundamentals are sound.
“I expect inflation will rise and stabilize around the (Fed's) 2% objective over the medium term," he said before adding that "in response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually."
However, Chicago Federal Reserve Bank President Charles Evans said shortly after that the U.S. central bank should wait until there are clear signs that income and prices are rising before raising interest rates again, warning that moving too fast would be a policy “misstep.”
Meanwhile, investors remained cautious after North Korea's foreign minister Ri Yong Ho said on Monday that President Donald Trump had declared war on the country and that Pyongyang reserved the right to shoot down U.S. bombers, even if they are not in its air space.
The safe haven yen was steady, with USD/JPY at 111.71, while USD/CHF gained 0.34% to trade at 0.9698.
EUR/USD slid 0.25% to 1.1818 as market participants were also still digesting the fact that Chancellor Angela Merkel won a fourth term in office on Sunday but will have to build a coalition to form a government as Conservatives lost support in the face of a surge by the anti-immigration Alternative for Germany (AfD).
The single currency also remained under pressure after European Central Bank President Mario Draghi said Monday that that the bank's "ample" accommodation was still needed and added that currency volatility is a source of uncertainty that requires monitoring.
The pound edged higher, with GBP/USD up 0.13% at 1.3483.
Elsewhere, the Australian and New Zealand dollars were weaker, with AUD/USD down 0.25% at 0.79179 and with NZD/USD retreating 0.71% to 0.7221.
Meanwhile, USD/CAD edged 0.09% higherto trade at 1.2380.
The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.18% at 92.62 by 05:20 a.m. ET (09:20 GMT), just off a three-week high of 92.67 hit overnight.