Forex - Dollar trims gains but stays up as U.S. fiscal impasse drags on

The dollar traded higher against most major currencies on Tuesday amid ongoing hopes for U.S. policymakers to end a fiscal stalemate that is threatening to throw the world's largest economy into default despite fresh snags that hit lawmakers earlier.

The U.S. is due to hit its debt ceiling on Thursday, after which Washington won't be able to guarantee all of its obligations.

In U.S. trading on Monday, EUR/USD was down 0.31% at 1.35019.

Negotiations among lawmakers to find a way to fund the government and avoid possible defaults hit a snag on Tuesday after the Democratically-controlled Senate said it would stop working on a way out of the impasse until the Republican controlled House comes up with a proposal.

The news sent the dollar falling from gains posted earlier in the session, when both the Senate and the House had prepared roadmaps to end the crisis that were viewed by many as compatible.

The dollar failed to plunge amid sentiments that budget talks have hit a pothole but weren't dead in the water yet, as reports the House was willing to work a new proposal kept the greenback largely higher save for the yen, which has acted as a safe-haven currency during the deadlock that closed the federal government on Oct. 1.

Elsewhere, data released earlier revealed that an index of manufacturing activity in the New York region came in below expectations this month.

The Federal Reserve Bank of New York said that its general business conditions index fell to 1.52 for October from 6.29 in September. Analysts had expected a reading of 7.0.

The single currency failed to advance on news that German economic sentiment improved more than expected in October by rising to the highest level since April 2010.

The ZEW Centre for Economic Research said that its index of German economic sentiment rose by 3.2 points to hit 52.8 in October from September’s reading of 49.6. Analysts had expected an unchanged reading.

The greenback was down against the pound, with GBP/USD up 0.08% at 1.5996.

In the U.K. data on Tuesday showed that consumer price inflation accelerated 2.7% on a year-over-year basis last month, unchanged from August and was 0.4% higher from a month earlier.

The dollar was down against the yen, with USD/JPY down 0.25% at 98.34, and up against the Swiss franc, with USD/CHF up 0.29% at 0.9128.

The dollar was mixed against its cousins in Canada, Australia and New Zealand, with USD/CAD up 0.25% at 1.0378, AUD/USD up 0.26% at 0.9513 and NZD/USD trading up 0.13% at 0.8369.

The dollar index, which tracks the performance of the greenback versus a basket of six other major currencies, was up 0.25% at 80.58.