Dollar firm as traders eye Trump's State of the Union address

By Saqib Iqbal Ahmed

NEW YORK (Reuters) - The U.S. dollar rose against a basket of major currencies on Tuesday, as investors awaited President Donald Trump's State of the Union address for a possible update on the U.S.-China trade war.

Continued recovery in investors' appetite for risk taking exerted pressure on safe-haven currencies, dragging the Swiss franc lower, while the Australian dollar climbed after the nation's central bank warned of risks to growth and steered clear of an explicit policy-easing signal.

With central banks around the world in a holding pattern, and a host of uncertainties on trade and other factors, trading in currency markets was largely range-bound, Eric Viloria, FX strategist at Credit Agricole, said.

"These ranges could go on for some time until there is more decisive central bank actions or resolutions to some of these political dynamics whether it's trade negotiations or otherwise," said Eric Viloria, FX strategist at Credit Agricole.

The Federal Reserve should leave interest rates where they are until the U.S. economic outlook is clearer, Dallas Fed President Robert Kaplan said on Tuesday, a process that in his view could take several more months.

The dollar index, which tracks the greenback versus the euro, yen, British pound and three other currencies, was up 0.22 percent at 96.064. The index, which hit a more than one-week high of 96.12 earlier in the session, is little changed for the year.

The euro was 0.2 lower against the dollar after a survey showed on Tuesday that euro zone businesses expanded at their weakest rate since mid-2013 at the start of the year.

Investors are shifting their attention to Trump's impending State of the Union address at 9 p.m. eastern (0200 GMT), which could hint at progress in U.S.-China trade talks.

"Market focus is likely to be on any indications on how Sino-U.S trade negotiations are going; anything positive on the trade news front should provide support for the greenback," Dean Popplewell, chief currency strategist at Oanda, said in a note.

Continued recovery in investors' appetite for risk taking pressured safe-haven currencies, and the Swiss franc, which tends to appreciate during bouts of economic uncertainty, sank to an 11-week low against the dollar.

The Australian dollar rose sharply, reversing earlier losses, after the Reserve Bank of Australia (RBA) held rates at record lows at its first meeting of the year but sounded less dovish than expected.

The British pound slumped to two-week lows after weak survey data and uncertainty about Brexit talks pushed it below a key market level, forcing some large investors to cut some bets.

The Canadian dollar slipped against its U.S. counterpart as oil prices edged lower.

(Reporting by Saqib Iqbal Ahmed in New York; Editing by Bernadette Baum and James Dalgleish)

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