The dollar inched higher against a basket of currencies on Tuesday, having pulled up from its lowest level in more than a week as hopes for easing global trade tensions pushed US bond yields higher.

The dollar's index versus a basket of six major peers rose 0.1 per cent to 92.638, inching away from a trough of 92.243 set on Monday, which was the lowest for the dollar index since May 2. The benchmark 10-year US Treasury yield was steady in Asian trading on Tuesday at 2.999 per cent, after rising 2 basis points on Monday.

The US 10-year bond yield had edged higher on Monday, as trade tensions eased in the wake of US President Donald Trump's pledge to help Chinese telecommunications company ZTE Corp, which has been penalised for violating US sanctions with Iran.

The dollar index had scaled a four-month high of 93.416 last week, as a rise in US Treasury yields highlighted the wide interest rate gap between the United States and some other developed economies, and bolstered the dollar's appeal.

Although the dollar's rally has lost steam after soft April US consumer price data released last week raised doubts as to whether the US Federal Reserve would raise interest rates as many as four times in 2018, some traders remain upbeat about its near-term outlook.

Stephen Innes, head of trading in Asia-Pacific for Oanda in Singapore, said he is comfortable remaining long US dollar, with interest rate differentials still likely to work in the greenback's favour. “The only thing I can really see right now is the...interest rate differential,” Innes said.

Innes added that he would probably stay with his dollar positive view until there is either a wave of positive economic data from countries other than the United States, or until the European Central Bank starts to sound “overtly hawkish instead of just tentatively”.

The euro edged up 0.1 per cent to $1.1934, but remained below Monday's high of $1.1996, which was the common currency's highest level since May 3. The euro had strengthened on Monday after European Central Bank policymaker Francois Villeroy de Galhau said that the ECB could give fresh guidance on the timing of its first rate hike as the end of its exceptional bond purchases approaches.

Despite the dollar's recent rally, some analysts remain sceptical about the chances of a sustained push higher in the greenback. Growing worries about the US budget deficit, which is projected to balloon to more than $1 trillion in 2019 due to a government spending splurge and large corporate tax cuts, have dimmed the outlook for the greenback, along with concerns about the country's current account deficit.

Against the yen, the dollar rose 0.1 per cent to 109.74 yen . The greenback faces resistance on technical charts at levels around 110.00 yen, having set a three-month high of 110.05 yen in early May. Investors are focused this week on speeches by Fed officials, as well as economic indicators such as US retail sales data due later on Tuesday.

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