Dollar hovers near 6-month lows amid US political uncertainty

TOKYO, May 22 (Reuters) - The dollar struggled to push ahead on Monday, holding near six-month lows against a basket of currencies as investors assessed the impact of U.S. political turmoil and a resurgent euro.

The dollar index, which tracks the greenback against a basket of six major rivals, inched up 0.1 percent from Friday's late U.S. levels to 97.235. But it was hovering not far from the previous session's 97.080, which was its lowest since Nov. 9.

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 neighbors.

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 111.43 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.

The euro inched down 0.1 percent to $1.196 after rising to a six-month high of $1.1212 on Friday.

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 month.

At the same time, 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.

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 on Sunday.

Uproar over Trump's recent firing of FBI Director James Comey, who was overseeing an investigation into possible links between the president's team and Russia, has pressured the dollar. A current White House official is a significant person of interest in the law enforcement investigation of possible ties between Trump's campaign and Russia, the Washington Post said on Friday, citing people familiar with the matter.

Investors were also focused on the likelihood the U.S. Federal Reserve would raise interest rates next month. Several central bank policymakers are due to speak this week, and the Fed on Wednesday will publish minutes of its May meeting, which preceded the most recent political turmoil.

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 but which many economists see as a blip.

(Reporting by Tokyo markets team; Editing by Shri Navaratnam)

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