* Euro net long positioning rises to highest in over 3
* Asian investors monitor N Korean situation after missile
TOKYO May 22 The dollar inched higher on
Monday, but remained close to six-month lows against a basket of
currencies as investors assessed the impact of the latest bout
of U.S. political turmoil and a resurgent euro.
The dollar index, which tracks the greenback against a
basket of six major rivals, steadied 0.2 percent from Friday's
late U.S. levels to 97.292. But it was hovering not far
from the previous session's low of 97.080, which was its deepest
trough since Nov. 9.
U.S. President Donald Trump, now on a trip to the Middle
East, left behind political drama in Washington that some fear
could derail his administration's promises of tax reform and
fiscal stimulus, if not his presidency.
Those fears threaten to offset much of the dollar-positive
sentiment genmerated by expectations for a U.S intrest rate rise
Trump's budget proposal, set to be unveiled on Tuesday, will
include cuts to Medicaid and propose changes to other assistance
programs for low-income citizens, the Washington Post reported
Uproar over Trump's recent firing of FBI Director James
Comey, who was overseeing an investigation into possible links
between the president's election campaign team and Russia, has
pressured the dollar. A current White House official is a
significant person of interest in investigation, the Washington
Post said on Friday, citing people familiar with the matter.
That news sent Treasury yields lower on Friday, sapping the
dollar's appeal, though they took back some ground on Monday.
The benchmark 10-year U.S. Treasury yield stood at
2.253 percent in Asian trading, above its U.S. close on Friday
of 2.245 percent.
The second reading of first-quarter U.S. gross domestic
product will be released on Friday and is expected to be revised
up from a preliminary estimate of annual growth of 0.7 percent.
That would be the weakest growth in three years, though many
economists think it will just prove to be a blip.
Futures traders are pricing in about a 3 in 4 chance of a
June rate hike, but only about a 40 percent chance of two or
more rate hikes in 2017, according to the CME Group's FedWatch
St. Louis Fed President James Bullard said on Friday that
the U.S. central bank's expected plans for rate increases may be
too fast for an economy that has shown recent signs of weakness.
Several Fed policymakers are due to speak this week, and the
central bank on Wednesday will publish minutes of its May
meeting, which preceded the most recent political developments.
"We're still keeping our expectation of a June hike, but the
impact of expectations of higher rates on forex could be limited
because of the political moves," said Harumi Taguchi, principal
economist at IHS Markit in Tokyo.
"And in the meantime, Europe is emerging as a bright spot in
the global economy," she said.
The euro slipped 0.2 percent to $1.1189 after rising
to a six-month high of $1.1212 on Friday.
Against the yen, the euro added 0.2 percent to 124.87
Net long positioning on the euro rose to its highest in more
than three years in the week ended May 16, according to
calculations by Reuters and Commodity Futures Trading Commission
data released on Friday.
Recent economic improvement in the euro zone have raised
market expectations the European Central Bank will tone down
its dovish language at its next Governing Council meeting next
Asian investors continued to monitor the situation on the
Korean peninsula, after North Korea fired a ballistic missile
into waters off its east coast on Sunday, its second missile
test in a week. South Korea said the launch dashed hopes for
Seoul's new liberal government's aim for peace between the
Pyongyang said on Monday it has successfully tested an
intermediate-range ballistic missile, indicating further
advances in the ability to hit U.S. targets.
Against its perceived safe-haven Japanese counterpart, the
dollar added 0.2 percent to 111.53 yen, though the latest
developments in North Korea did not give the yen much of a lift.
"If there's some escalation of the situation, we would
likely see the yen rise," said Ayako Sera, senior market
economist at Sumitomo Mitsui Trust.
"But the main story for the markets is dollar weakness due
to the U.S. political situation, and also the recent strength of
the euro," she said.
(Reporting by Tokyo markets team; Editing by Simon