LONDON: The US dollar recouped some overnight losses and the euro gained for a second day on Tuesday as risk sentiment recovered partially after a selloff in global markets.
Major currencies held within well-worn trading ranges, however, as a surge in cases of the Omicron coronavirus variant forced countries to reimpose restrictions, raising concerns over the near-term economic outlook.
Risk appetite took a blow on Monday after US Senator Joe Manchin, a moderate Democrat who is key to President Joe Biden's hopes of passing a $1.75 trillion domestic investment bill - known as Build Back Better - said on Sunday he would not support the package prompting a selloff in global markets.
"Tuesday's reversal comes after US Senator Manchin puts forward proposals to support President Biden's $1.75 trillion fiscal bill with poor liquidity probably exaggerating some of yesterday's moves," said Kenneth Broux, an FX strategist at Societe Generale.
The dollar index, which measures the currency against six major peers, was down 0.1% at 96.42, but above Monday's low of 96.33.
In terms of the bigger picture, the dollar is still within striking distance of a 16-month high of 96.914 hit last week, after the US Federal Reserve opened the door to as many as three interest rate increases in 2022.
Investors still remain bullish on the outlook for the greenback with latest positioning data near their highest levels in more than two years.
Dollar steady, riskier currencies fall on Omicron fears
The Australian dollar, which was among the hardest hit currencies thanks to its high correlation to the global economic outlook, bounced on Tuesday, snapping a two-day weakening streak.
The euro inched higher to $1.1293, and the safe haven yen lost ground to 113.61 per dollar.
Elsewhere, Turkey's lira rocketed 15% higher on Tuesday, extending its historic recovery from record lows, after President Tayyip Erdogan unveiled a plan he said would guarantee local currency deposits against market fluctuations.
Bitcoin gained 4% to $48,700 after trending lower for the past few weeks.
A broader gauge of currency market volatility edged higher to 6.6% after falling to a one-month low last week.
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