The dollar climbed for a second consecutive day on Tuesday as investors took profits into a recent drop in the greenback in the backdrop of firmer bond yields and a central bank policy decision due this week.
Despite the dollar's bounce, the currency is set for its biggest monthly decline since July 2017 as the combination of strong global growth and slow inflation encouraged investors to add bearish bets.
But a spike in global bond yields, with ten-year U.S. bond yields pushing well above 2.70 percent, its highest since April 2014, prompted some investors to cut some short positions.
"We are seeing a consolidation of the dollar's losses and there is a whiff of nervousness among dollar bears out there," said Viraj Patel, an FX strategist at ING in London.
The dollar rose 0.3 percent against a basket of six major currencies to 89.60, having pulled up from a low of around 88.43 set last week, its weakest level since December 2014.
Analysts said a renewed rise in U.S. bond yields this week lent some support to the dollar. The U.S. 10-year Treasury yield reached a peak of 2.733 percent in Asian trading on Tuesday, the highest since April 2014, and last stood at 2.712 percent.