The dollar edged higher on Tuesday, as focus shifted back to the prospect of the U.S. Federal Reserve raising interest rates amid receding concerns that last week's devaluation of China's yuan could spark a global currency war. Against a basket of major currencies, the dollar rose 0.2 percent to 96.963 .DXY, pulling away from a one-month low of 95.926 set last week when Beijing's surprise move dented expectations of the Fed raising rates in September. The dollar inched up 0.1 percent to 124.50 yen JPY=, moving away from a recent trough of 123.79 yen set last Wednesday in the wake of the yuan's devaluation. China's central bank has since tempered the yuan's slide, soothing anxiety of a further sharp devaluation - a scenario markets feared could stoke worldwide disinflation and lead to a global currency war. The yuan slipped 0.3 percent versus the dollar on Tuesday and last stood at 6.4113 CNY=CFXS. The relative calmness in yuan trading has allowed markets to refocus on when the Fed could begin raising interest rates. "As long as China doesn't continue to aggressively devalue the Chinese yuan, we will see it in the next six months and the U.S. dollar will be stronger," said Jeffrey Halley, FX trader for Saxo Capital Markets in Singapore, referring to when the Fed might start raising interest rates. The euro slipped 0.2 percent to $1.1056 EUR=, having retreated from a one-month high of $1.1215 set last Wednesday. The dollar showed resilience even after a New York Federal Reserve survey released on Monday showed manufacturing activity in New York state plunged in August to its weakest level since 2009. "The New York Federal Reserve data was not a positive one but employment and prices remain the key points towards a potential rate hike," said Shinichiro Kadota, chief Japan FX strategist at Barclays in Tokyo. "The focus remains on the Fed, including what it might or might not do in the wake of China's yuan move," Kadota added. The Australian dollar eased 0.2 percent to $0.7361 AUD=D4, but held comfortably above a six-year low of $0.7217 set last week when the yuan's plunge churned currency markets.
