The US dollar was elevated after its biggest surge in three weeks against major peers overnight, with Federal Reserve officials talking about the possibility of further aggressive interest rate hikes.
The dollar went up against the safe-haven yen, extending its maximum gain for six weeks, as US Treasury yields rebounded after House Speaker Nancy Pelosi arrived in Taiwan and met with a strong but not off-the- scale response from China.
New Zealand's dollar dropped after a surprise rise in the unemployment rate. Australia's currency fell.
The US dollar index, which measures the currency against six major peers including the yen, was 0.05% higher at 106.50 after rebounding 1% overnight after its slide to a nearly one-month low at 105.03.
The dollar rose by 0.51% to 133.84 yen after jumping 1.2% on Tuesday. It had sunk to a nearly two-month low of 130.40 earlier in the day.
The long-term Treasury yields, which the dollar-yen pair tends to track closely, were around 2.75% in Tokyo, holding close to overnight highs after a 14 basis point surge.
On Tuesday, San Francisco Fed President Mary Daly and Chicago Fed President Charles Evans signaled that they and their colleagues remain resolute and fully united over getting rates up to a level that will curb economic activity. The comments by the dovish Daly and the equally dovish Evans helped yields and the dollar went up, and the dollar index could top 108 in the next few weeks, according to Kristina Clifton, a strategist at Commonwealth Bank of Australia.
The Fed will hike by another 75 basis points at its next meeting in September, and traders now think that it's going to be 44%.
Pelosi's safe arrival in Taiwan, which China considers a breakaway province, prompted anger in Beijing, with warplanes buzzing the Taiwan Strait and the announcement of live-fire military drills.
Tapas Strickland, analyst at National Australia Bank, wrote in a note that there was a geopolitical risk premium being priced in the lead up to the event. With China making a strong, but not an unhinged response, that risk premium was removed, lifting yields and the dollar-yen pair, Strickland wrote.
The euro dropped 0.1% to $1.01555, while the sterling lost 0.12% to $1.2144.
The Australian dollar fell 0.44% to $0.689 on Tuesday, extending a 1.52% slide from Tuesday when the Reserve Bank hiked the key rate by another half point, as expected, but opened the door to slowing the pace of tightening.
New Zealand's dollar dropped 0.58% to $0.62185 after a surprise rise in the unemployment rate to 3.3% in the second quarter, when economists had predicted it would ease to 3.1%.