NEW YORK (Reuters) - The dollar fell on Tuesday to a six-month low against the euro and a two-month trough against the Swiss franc, as U.S. Treasury yields retreated and the timing of the Federal Reserve's reduction in its stimulus efforts remained uncertain.
Yields on the U.S. benchmark 10-year Treasury note dropped after reaching two-year highs the previous session in anticipation of an eventual tapering of the Fed's bond-buying program. Lower U.S. yields diminish the attractiveness of dollar-denominated assets.
Conflicting signals from Fed officials and mixed U.S. economic data have muddied the outlook for a tapering of the Fed's stimulus program, viewed as generally positive for the dollar. The release of the minutes of the Fed's July meeting on Wednesday could provide clues to whether the central bank will pare those purchases in September.
"If the minutes emphasize the progress made in the U.S. economy and the need to act quickly, the dollar could resume its rise as yields extend higher," said Kathy Lien, managing director at BK Asset Management in New York.
"However, if the minutes contain an overall air of caution with more members wanting to wait for further improvements before changes are made, the dollar could fall sharply."
The U.S. currency fell on Tuesday against the yen and Swiss franc, with investors seeking out safe-haven currencies as global shares retreated and emerging market currencies saw another wave of selling. The dollar slid to a two-month low against the franc and a one-week low against the yen.
"Given the ongoing uncertainty surrounding the timing and extent of the U.S. Federal Reserve's exit from its quantitative easing program, we are seeing continuing evidence of safe-haven plays in the FX markets," said Samarjit Shankar, director of market strategy at BNY Mellon in Boston.
"Most notably ... our iFlow FX indicators confirm the Japanese yen remains buoyed as market participants unwind riskier bets," he said.
The dollar index, a measure of the U.S. dollar's value against a basket of six major currencies, fell 0.4 percent to 80.900 .DXY. It earlier dropped to a two-month low of 80.754.
The euro rose 0.7 percent in thin trade to $1.3421, as the yield premium that 10-year U.S. Treasury notes offer over German Bunds narrowed. The euro had reached a session peak of $1.3452, according to Reuters data, its highest since February 14.
Many investors say the Fed remains likely to be the first major central bank to unwind its liquidity program, which, combined with an improving U.S. economy and rising risk aversion, should favor the dollar.
The dollar fell 0.3 percent to 97.21 yen. Weakness in global stocks along with a selloff in emerging market currencies on fears of a Fed move next month have supported the Japanese currency. It earlier fell to 96.88, a one-week low.
The dollar also slid 0.8 percent to 0.9171 Swiss franc, hitting a trough of 0.9145, its weakest level since mid-June.
Subdued risk appetite hurt higher-yielding, growth-linked currencies. The Australian dollar fell 0.4 percent to US$0.9077.
The New Zealand dollar, meanwhile, slid 1.1 percent to US$0.7979 after the Reserve Bank of New Zealand announced home lending restrictions and said the currency was overvalued.
Emerging market currencies also tumbled on jitters about the future of U.S. stimulus. Investors fear an end to cheap money and an improvement in the performance of advanced economies will reverse a flow of much-needed capital away from emerging markets.
India's rupee fell to a record low, forcing the central bank to intervene in the market while the Indonesian rupiah dropped to four-year lows.
(Additional reporting by Wanfeng Zhou; Editing by Steve Orlofsky)