[NEW YORK] The US dollar rebounded from a seven-week low on Thursday, still feeling the positive effects of a record-setting Dow Jones Industrial Average the day before, although gains were tempered by persistent uncertainty surrounding the new US administration's economic policy plans.

"There's a little more uncertainty with the dollar," said Sireen Harajli, currency strategist at Mizuho in New York.

"Obviously, the market expects the Fed to tighten in the second half of the year. That will continue to provide support for the dollar. But the big question right now is whether all these expectations on policy will be met by actual action."

The Dow, which hit more than 20,000 points on Wednesday, held above that key psychological level in mid-afternoon trading, keeping the US dollar well supported. But US yields slipped after gains in the morning session, amid a well-received US seven-year Treasury auction.

While equities and Treasury yields have continued to rise in the past week, fuelled by US President Donald Trump's signals of new public spending, the effect on the US dollar over the last two weeks has been mixed. Investors were concerned about other parts of Mr Trump's policy mix such as his leanings toward a protectionist trade policy.

Still, investors believed the US dollar could make up some lost ground the next few weeks, with the Federal Reserve holding its first policy meeting this year on Feb 1.

"Although the Fed is not expected to raise rates further at that meeting, the central bank is likely to provide a clearer outlook for rate hikes in 2017, especially in view of the projected US inflation trajectory under Trump's proposed fiscal stimulus plans," said James Chen, head of research at Forex.com in Bedminster, New Jersey.

"With any more hawkish hints from the Fed, the dollar could continue to rebound."

In mid-afternoon trading, the US dollar index was up 0.3 per cent at 100.36, having hit a seven-week low of 99.793 in Asian trading.

The US dollar gained 0.9 per cent against the yen to 114.35 yen, while the euro fell 0.4 per cent versus the greenback to US$1.0700.

The US dollar earlier trimmed gains against both the yen and euro after a weak set of US economic data, including an increase in initial jobless claims and a fall in new home sales.

Among G10 currencies, sterling has been the biggest gainer the past two weeks, up almost 6 per cent from lows hit on Jan 16. On Thursday though, sterling was down 0.2 per cent at US$1.2610, despite a solid reading of Britain's fourth-quarter growth.

REUTERS