The dollar strengthened for the first time in three days versus the euro as optimism Senate leaders will reach a deal on raising the nation’s debt limit boosted demand for U.S. assets versus their European peers. Australia’s dollar and South Korea’s won led gains in higher-yielding currencies as the prospect of a deal to avert a U.S. default and end a partial government shutdown boosted demand for assets that tend to appreciate as growth accelerates. A gauge of foreign-exchange volatility fell to an eight-month low as traders waited for a resolution to the impasse. The euro weakened after an index of German investor perceptions of the current economic situation deteriorated this month. “The dollar seems to be deriving some support against the other major currencies as investor expectations rise that an agreement might be in the offing to raise the debt ceiling,� said Lee Hardman, a foreign-exchange strategist at Bank of Tokyo-Mitsubishi UFJ Ltd. in London. “The dollar will underperform against the higher-yielding currencies as risk sentiment improves.� The dollar advanced 0.4 percent to $1.3510 per euro at 6:05 a.m. New York time and was little changed at 98.62 yen. The euro slipped 0.3 percent to 133.22 yen. The Bloomberg U.S. Dollar Index, which tracks the greenback against 10 other major currencies, rose 0.2 percent to 1,013.16 after declining 0.2 percent in the past two days. To contact the reporter on this story: Emma Charlton in London at echarlton1@bloomberg.net To contact the editor responsible for this story: Paul Dobson at pdobson2@bloomberg.net

Source