The dollar climbed on Tuesday on expectations of further hawkishness from the Federal Reserve on Wednesday when chair Janet Yellen testifies on monetary policy before Congress.
Further clues on the Fed's monetary policy path are expected from Yellen when she delivers her semi-annual testimony before Capitol Hill's lawmakers.
Market watchers will be keen for further indications on how many more interest rate increases to expect this year.
There is also likely to be much interest in whether the central bank intends to soon start reining in its balance sheet – bloated by many months of QE assets purchases.
The dollar index is down nearly 7% so far this year. Usually the path to higher interest rates would lift the domestic currency as higher yields boost investment.
Dollar bulls have been cautious, however, and markets have for some time been pricing in the Fed's most recent moves.
Overseas tightening expected
"Instead, it is the looming turnaround in monetary policy elsewhere that is driving currencies and pushing the dollar down," said Steven Barrow, analyst at Standard Bank.
James Athey, senior investment manager at Aberdeen Asset Management agreed: "We have moved from a world where the bulk of central banks will emphasise nothing but unending support for economies to one where they don’t. That’s significant."
In the last month, however, the dollar has received a boost from hawkish comments by Fed officials.
Since the start of July the dollar index, a measure of the greenback against a basket of rival currencies, has rallied 0.5%.
Minutes from last month's policy meeting suggested the hawks are dominant on the Fed's Open Market Committee and dollar bulls will be looking for more indications from Yellen that low inflation is "transitory".
"So far, she is still convinced that inflation weakness is temporary and expects that the sub 5% unemployment rate will eventually boost prices," said Hussein Sayed, chief market strategist at FXTM.
A day ahead of Yellen's testimony, the dollar was up 0.1% against the euro at $1.14 and gained 0.3% against the yen to Y114.35 and 0.2% versus the pound at $1.2906.
New Fed bank overseer
On Monday it was announced by the White House that President Trump planned to nominate Randal Quarles, a former Treasury official, as the first vice chair of supervision at the Federal Reserve.
The position, created in 2008 but never filled under the Obama administration, is responsible for matters of banking regulation at the Fed.