Forex - Dollar Extends Gains with Yellen Speech on Tap

The dollar extended gains against other major currencies on Tuesday, despote the release of downbeat U.S. data, as investors were eyeing a speech by Federal Reserve Chair Janet Yellen due later in the day.

Markets shrugged off a report by the Conference Board showing that U.S. consumer confidence fell more than expected in September.

A separate report showed that U.S. new home sales fell for a second straight month in August.

Later Tuesday, Janet Yellen's comments were expected to be monitored closely for any new insight on policy after the U.S. central bank last week announced it would begin trimming down its $4.5 trillion in assets and signaled it will likely raise rates again this year.

The greenback had strengthened after New York Federal Reserve President William Dudley on Monday said the Fed is on track to gradually raise interest rates given factors depressing inflation are "fading" and the U.S. economy's fundamentals are sound.

However, Chicago Federal Reserve Bank President Charles Evans said shortly after that the U.S. central bank should wait until there are clear signs that income and prices are rising before raising interest rates again, warning that moving too fast would be a policy “misstep.”

The yen and Swiss franc was weaker, with USD/JPY up 0.41% at 112.18 and with USD/CHF climbing 0.52% to trade at 0.9714.

Safe-haven demand had strengthened after North Korea's foreign minister Ri Yong Ho said on Monday that President Donald Trump had declared war on the country and that Pyongyang reserved the right to shoot down U.S. bombers, even if they are not in its air space.

EUR/USD dropped 0.57% to a one-month low of 1.1779 as German Chancellor Angela Merkel now faces months of coalition talks to try to form a stable government, leaving investors’ worries that political uncertainty could hit the Germany economy.

Political risk in Spain also weighed, with the Catalan government planning to hold a referendum on whether to break away from Spain on Sunday, despite opposition from Spanish authorities.

Sentiment on the euro was also fragile after European Central Bank President Mario Draghi said Monday that that "ample" ECB accommodation was still needed and added that currency volatility is a source of uncertainty that requires monitoring.

The pound turned lower, with GBP/USD down 0.28% at 1.3428.

Elsewhere, the Australian and New Zealand dollars pushed lower, with AUD/USD down 0.69% at 0.7882 and with NZD/USD tumbling 1.17% to 0.7190.

Meanwhile, USD/CAD held steady at 1.2375.

The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, was up 0.52% at 92.92 by 10:50 a.m. ET (14:50 GMT), the highest since August 31.