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TOKYO (Reuters) - The dollar rose against the yen and euro on Tuesday, boosted by some upbeat U.S. economic news, while the pound wallowed near a three-decade low on concerns over a potential "hard Brexit" for Britain.
The dollar added to overnight gains and was up 0.5 percent at 102.150 yen after touching a 13-day high of 102.215. The euro dipped 0.1 percent to $1.1204 after slipping 0.3 percent the previous day.
The greenback was on the front foot after data from the Institute for Supply Management (ISM) showed on Monday that the barometer for the U.S. manufacturing sector returned to expansion in September.
"The market was relieved as ISM numbers had been weak recently. There might be follow-through buying for the dollar, but it could be difficult for the currency to break out of recent range as the ISM data alone won't boost the case for the Fed to continuously hike rates," said Shin Kadota, chief Japan FX strategist at Barclays in Tokyo.
Fed funds futures imply that investors still see a very low chance for the Federal Reserve to hike interest rates at its next policy meeting in November, while the odds slightly favour an increase in December.
Moreover, the currency market will have to navigate the U.S. presidential election before focusing on the Fed's monetary policy.
The dollar index rose 0.2 percent to 95.862.
The U.S. currency was particularly strong against the pound, which has declined steadily since British Prime Minister Theresa May set a March deadline for the UK's formal departure process from the European Union to begin.
The March deadline offers some clarity to the process and underpinned stocks, but many in the market worry that the government's stance points to a "hard Brexit" where Britain quits the single market in favour of retaining control over migration.
Sterling steadied at $1.2831 after falling on Monday to $1.2818, nearing the 31-year low of $1.2798 plumbed on July 6 in the market turmoil following the late-June Brexit referendum.
While the post-referendum turmoil spurred demand for safe-havens like the yen, analysts pointed out that the latest slide in the pound is yet to trigger similar reaction.
"Right now the reaction to Prime Minister May setting a departure deadline is mostly limited to the pound. A greater negative impact on the British economy will have be witnessed first for Brexit woes to cause broader risk aversion," said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
The Australian dollar was little changed at $0.7677,
awaiting the Reserve Bank of Australia's policy decision later in the session for immediate cues.
The RBA is widely expected to stand pat and keep its cash rate at a record low of 1.5 percent as Australia's biggest-ever boom in apartment-building has helped support economic activity.
Reporting by Shinichi Saoshiro; Editing by Eric Meijer