US Dollar Set to End Month with Gain

The US dollar resumed its upward momentum on Tuesday, placing it on course to end the month with a noteworthy gain following a four-month decline. Market speculation that the US Federal Reserve will have to raise interest rates more than previously anticipated, which was reinforced by a series of encouraging economic data releases from the US, has fueled the greenback's recent surge. The dollar index, which measures the currency against a basket of rivals, climbed by 0.18% to 104.84 in Asia trade and is expected to register a monthly gain of more than 2.5%, its first since September.

Fed Policymakers seem to Stay Hawkish

The buoyancy of the world's largest economy has provided a basis for Fed policymakers to remain hawkish, with investors now projecting that the Fed funds rate will peak slightly above 5.4% by September. The dollar has rebounded, and this is fully warranted given the strength of the January numbers that were reported in February and the repricing for the Fed. That being said, the next move in the dollar is a function of how the February data starts to play out in March.

GBP/USD Bears Look to Retake Control Amidst Renewed Intraday Lows

Elsewhere, the sterling gave up some of its gains from the previous session, dropping by 0.18% to $1.2041. On Monday, it had surged by 1% following the announcement of a new deal for post-Brexit trading arrangements for Northern Ireland, known as the Windsor Framework, between Britain and the European Union. This brightened the outlook for the post-Brexit UK economy, with British Prime Minister Rishi Sunak stating that it would pave the way for a new chapter in London's relationship with the bloc. The euro, likewise, was 0.22% lower at $1.0585, having increased by 0.6% in the previous session on the news.

The GBP/USD pair's Brexit-driven positivity lost steam at Tuesday's London opening, as the Cable pair retreated towards the intraday low of 1.2040, erasing its biggest daily gains in a month made the day before.

The bears will need a definitive break below the two-week-old support line turned resistance level at 1.2040 to regain control over the GBP/USD pair.

However, the bulls of the Cable pair have managed to keep pushing against a downward-sloping resistance line, which began on February 2, hovering close to 1.2110.

Dovish Comments from Incoming BoJ Officials Keep Yen Price Afloat

Against the Japanese yen, the dollar advanced by 0.07% to 136.31. Incoming Bank of Japan (BOJ) Governor Kazuo Ueda has yet to provide any indications regarding whether the bank will soon terminate its massive stimulus program, though he has suggested that he has thoughts on such a step. Incoming Deputy Governor Shinichi Uchida, on the other hand, dismissed the possibility of an immediate overhaul of the BOJ's ultra-loose monetary policy on Tuesday.

During Tuesday's Asian session, USD/JPY remained stable around the 136.10-20 level, reflecting the market's inactivity due to the positioning at the end of the month and the absence of significant data or events. However, Yen's value has been supported by dovish remarks from newly appointed Bank of Japan (BoJ) officials, adding to the cautious optimism in the market. This has prevented the Yen's price from falling further after it retreated from a two-month high on Monday.