The dollar traded above a recent three-year low against a basket of major currencies on Tuesday, having drawn some support from a rise in US bond yields as traders awaited a US Federal Reserve policy meeting for fresh catalysts.

The dollar edged up 0.1 per cent against a basket of six major currencies to 89.392, having pulled up from a low of around 88.43 set last week, its weakest level since December 2014. Against the yen, the dollar eased 0.1 per cent to 109.87 yen , giving back some of the gains made on Monday, when it rose 0.3 per cent and pulled away Friday's 108.28 yen, a level not seen since Sept. 11.

On Monday, the US 10-year Treasury yield reached a peak of 2.727 per cent, the highest since April 2014, bolstering the dollar's yield attraction. The rise in US bond yields helped spur short-covering in the dollar, said Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore. “I think that spooked a lot of the (traders with) short dollar positions,” Innes said. While the rise in US debt yields might stem from concerns over the possibility of eventual increases in bond issuance, there may also be some caution ahead of the Fed meeting starting later on Tuesday, he added.

The euro held steady at $1.2375, staying well below Thursday's three-year peak of $1.2538. Later on Tuesday, market participants will also turn their focus to US President Donald Trump's State of the Union speech. Trump said on Monday he will address his proposed immigration overhaul in his speech as well as his efforts to lower trade barriers around the world for American exports. The president will also outline his much-anticipated infrastructure plan in his speech.

The Fed is widely expected to keep interest rates unchanged at its two-day policy meeting that starts on Tuesday. Investors, however, will be focusing on the central bank's assessment of the economy and inflation for hints on the monetary policy outlook.

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