The dollar traded lower on Tuesday, in line with the drop in Treasury yields, as investors braced for a potentially dovish Federal Reserve at a Jackson Hole, Wyoming, gathering later this week, with many expecting an announcement of some measure that would ease US recession concerns. "Market expectations for Jackson Hole and the central banking community in aggregate are extremely dovish," said Brad Bechtel, managing director at Jefferies in New York. "The US market is pricing a tremendous amount of easing now, along with many other markets around the world."

Markets also cautiously awaited Fed Chairman Jerome Powell's speech on Friday in Jackson Hole. The curve of 2-year and 10-year Treasury yields, however, remained steeper on Tuesday, but could invert again based on past cycles.

In midday trading, the dollar fell 0.3% against the yen to 106.34 yen and was down 0.3% versus the Swiss franc at 0.9792 franc. The dollar index was down 0.1% at 98.255 after earlier rising to a 2-1/2-week high of 98.40. It reached its 2019 high of 98.932 at the beginning of the month.

The euro rose 0.2% against the dollar to $1.1093 after Italy's prime minister announced his resignation on Tuesday even as he made a blistering attack on his own interior minister, Matteo Salvini, accusing him of sinking the ruling coalition and endangering the economy for personal and political gain. Elsewhere, the pound was down 0.1% both against the dollar and the euro, last at $1.2088 and at 91.25 pence against the euro.

Copyright Reuters, 2019