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The U.S. dollar rose to its highest in more than two years versus a basket of currencies on Tuesday before data that is forecast to show the U.S. manufacturing sector returned to growth, which would ease concern about the impact of the trade war with China.
The euro teetered near its lowest in more than two years against the greenback before data expected to show European inflation has remained tepid, suggesting euro zone policy will remain accommodative for some time.
The Australian dollar edged lower after the Reserve Bank of Australia (RBA) cut interest rates and expressed concern about job growth, while the New Zealand dollar hit a new four-year low as weak business sentiment continued to weigh on the .
A host of economic data and comments from central bankers this week will set the tone for major currencies as traders try to determine how far policymakers will go to bolster growth.
"Economic data can be supportive of the dollar, and the Federal Reserve's comments are not as dovish as some people think," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
"An RBA rate cut and the risk of a stagnant European economy both should be positive for the greenback."
The against a basket of six major currencies rose 0.10% to 99.479, after briefly touching the highest since May 12, 2017.
The dollar rose 0.17% to 108.26 yen , close to its strongest level in almost two weeks.
The yen remained weak after the Bank of Japan's tankan showed business confidence in the third quarter slid to its lowest in six years. was subdued in Asian time because China's financial markets are closed until Monday for public holidays. Financial markets in Hong Kong were also closed on Tuesday for a holiday.
The Institute for Supply Management's measure of U.S. manufacturing activity later on Tuesday is forecast to show a return to expansion in September, but just barely.
In August, U.S. manufacturing activity contracted for the first time in three years due to the U.S.-China trade war.
Several Fed policymakers are scheduled to speak this week, but traders said they will focus most on comments from Fed Chairman Jerome Powell on Friday for hints about the direction of U.S. monetary policy.
The Fed has cut interest rates twice this year, but there are signs that it is reluctant to ease policy further because the jobs market remains strong.
The euro fell 0.09% to $1.0889 , close to its lowest since May 12, 2017.
Data due on Tuesday are forecast to show consumer prices in the euro zone rose an annual 1.0% in September, unchanged from the previous month and well below the European Central Bank's target.
Annual inflation in Germany, Europe's largest economy, slowed to the lowest in almost three years, data on Monday showed. ECB unleashed a new round of monetary easing measures on Sept. 12, but there is growing concern that the central bank is reaching the limits of what it can achieve and the burden will fall to eurozone governments to boost fiscal spending.
The Australian dollar briefly rose after the RBA cut its cash rate to a record low of 0.75%, as expected. However, the surrendered those gains to trade down 0.21% at $0.6742 AUD=D3 .
The RBA said forward-looking indicators suggest employment growth is likely to slow, which could bolster expectations that it will cut rates again by early next year. New Zealand dollar fell to a new four-year low of $0.6238 NZD=D3 . The kiwi has taken a hit as weakening business confidence bolstered expectations for monetary easing.
German inflation slows unexpectedly in September
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