PMI data from other parts of the world released on Tuesday were also encouraging
Dollar edges up as data buoys sentiment
The dollar edged higher on Tuesday as investors consolidated positions, a day after fresh political turmoil in Washington caused the US currency to post its biggest monthly drop in 16 months.
Uncertainty was expected to continue weighing on the dollar, following the US president Donald Trump's ousting of the White House communications chief Anthony Scaramucci on Monday, 10 days after he was hired.
"I think the short dollar trade is still the broad consensus trade in the financial markets," said Esther Maria Reichelt, an FX analyst at Commerzbank in Frankfurt.
"But we are approaching important levels against other currencies, such as 1.20 on the euro, which may prompt some concerns from other central banks."
Broader markets have focused on the euro's rise against the dollar - more than 12 per cent so far this year -, but other developed-market currencies have gained as well.
The Swedish and Norwegian crowns have strengthened, and sterling reached an 11-month high against the dollar on Tuesday after UK manufacturing data.
Expectations the Fed will raise US interest rates again have dropped to around 47 per cent compared with a 50 per cent probability a month ago, according to CME's Fedwatch tool.
But recent data showed the US economy may be doing better than expected, and a PMI survey due later on Tuesday from the United States is expected to suggest US manufacturing continued to expand in July.
PMI data from other parts of the world released on Tuesday were also encouraging. They showed euro-zone growth remained buoyant, British manufacturing recovered from a seven-month low and Chinese factory activity unexpectedly expanded.
"The Trump discount trade on the dollar has gained a fair bit of momentum in recent weeks but with a busy data week ahead, there is some consolidation," said Hans Redeker, a strategist at Morgan Stanley in London.
An index measuring the dollar's value against a basket of six major currencies fell to its lowest levels since May 2016 on Monday and was trading a shade above that at 92.96 on Tuesday.
The index fell in July, its fifth consecutive monthly decline and the longest such stretch since December 2010 through April 2011. On a monthly basis, it was the biggest drop since March 2016, according to Reuters data.
The US core personal consumption expenditures price index is due later on Tuesday, with the highlight of the US data week being Friday's jobs report.