The U.S. Dollar Index little changed Risk-sensitive Australian dollar rose after historic drop Updates Prices By Saqib Iqbal Ahmed NEW YORK, Dec 21, Reuters - The U.S. dollar dropped slightly on Tuesday as improving risk sentiment boosted riskier currencies such as the Australian dollar and British pound. The U.S. Dollar Currency Index fell to 96.47, down 0.03% on the day, after slipping as low as 96.336 earlier in the session. The index, which is up about 7% for the year, fell by 0.1% on Monday as traders sold the greenback to book profits in the final days of the year. Risk appetite took a blow on Monday after the U.S. took a hit. Senator Joe Manchin, a conservative 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, leading to a sell-off in global markets. Surging Omicron coronaviruses cases pushed investors to look for safe havens such as the Swiss franc CHF Stocks and the Japanese yen rebounded, and bond yields went up on Tuesday as investors looked past the recent setbacks. Shaun Osborne, chief FX strategist at Scotiabank, said in a note that we expect a broader range of trading over the holiday period. The risk-sensitive Australian dollar bounced back on Tuesday, snapping a two-day weakening streak to trade up 0.60%. Even as British Prime Minister Boris Johnson cautioned that further measures may be needed to tackle the spread of the virus, the British pound went up against the dollar and euro, as the rebound in global risk appetite pushed the British pound up against the dollar and euro. The dollar index is close to the 16 month high of 96.938 hit in late November despite the lackluster showing this week. Investors are bullish about the outlook for the dollar, with the latest positioning data near the highest levels in more than two years. The Federal Reserve's hawkish statement last week that it would accelerate its asset purchases, paving the way for three quarter-percentage-point rate increases in 2022 is expected to keep the dollar well-supported. The USD and CAD will advance against the majors in the new year as investors bank on tighter monetary policy being introduced by the Fed and Bank of Canada, according to Osborne. The Bank of Canada said on Wednesday that the central bank is going to hike rates soon after the coronaviruses hit the country's economy, which has dwindled due to the slack in Canada's economy. The loonie was up about 0.2% on Tuesday. In other trading, Turkey's lira was up about 7% against the U.S. dollar, extending its historic recovery from record lows after President Tayyip Erdogan unveiled a plan that would guarantee local currency deposits against market fluctuations. After dropping for the past few weeks, the price of virtual currency increased by 3.5% to $48,558.