LONDON: The dollar inched up against the euro on Tuesday but its longer-term rally remained in uncertain territory after the worst monthly performance in almost four years in April.
The Aussie dollar gained half a percent after the Reserve Bank of Australia hinted its cycle of interest rate cuts might have ended for now with a quarter percentage point overnight.
An extremely volatile second half of April saw the US currency slide more than 6 percent against the euro, doubts over the pace of US growth prompting the first major turnaround in a rally dating back almost a year.
That has somewhat undermined faith in major banks' forecasts that it would move past parity to the euro for the first time since 2002, but many analysts still characterise the move as a temporary retreat on its way higher.
"We have had a big correction and that has taken some of the (potential for) profit-taking out of the market," said Jane Foley, a strategist with Rabobank in London. "That said, there is still a big debate about how fast the Fed can start raising rates.
We have had a very disappointing first quarter in the US, we need to know how much that is just weather and other temporary factors."
The dollar traded 0.3 percent higher at $1.1115, after strengthening as much as half a percent.
That compared to a two-month low of $1.1290 hit at the end of last week.
This week's key numbers from the United States are non-farm payrolls on Friday.
Before then, the UK election looks likely to lead to days or weeks of uncertainty over the makeup of the next government.
One-week implied volatility on sterling is at its highest since the last election in 2010 as a result and many analysts have argued the pound will be at risk. "Euro positioning is still short enough to argue for caution," Kit Juckes, a Societe Generale strategist in London, said in a note. "GBP/USD, on the other hand, is vulnerable.
It is going to be very hard for anyone to form a stable government after Thursday night.
I can't see how that helps sterling." Sterling held steady at $1.5118.
The Aussie fell initially after the RBA cut rates, but the removal of a sentence that has previously pointed to further easing was read as signalling it was done for now - a positive for short-term market borrowing costs.
By 1158 GMT, the Aussie was 0.4 percent higher on the day at $0.7874, having earlier climbed above $0.7900.
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