By Daniel Kruger
The U.S. dollar edged higher Wednesday, fueled by a gain against the euro, as longer-term U.S. government bond yields rose modestly.
The WSJ Dollar Index, which measures the currency against a basket of 16 others, advanced less than 0.1% to 86.96. The dollar rose 0.4% against the euro, touching its highest level against the unified currency since Dec. 18.
The dollar's rise relative to the euro was fueled by concerns about the formation of a new governing coalition in Italy. Two Italian antiestablishment parties are seeking to set up a coalition government that would advocate for procedures for countries that use the euro to exit from the European Currency Union. Yields on Italian government 10-year bonds rose to 2.089% from 1.950%.
Investors are "waking up to Italian political risk," said Alvise Marino, a currency strategist at Credit Suisse Group.
The dollar weakened earlier as U.S. government bond yields briefly fell, pushed lower by signs of geopolitical unease, ranging from new uncertainties about talks between the U.S. and North Korea, the potential for an antiestablishment governing coalition in Italy and concerns about talks to revise the North American Free Trade Agreement.
Analysts have credited the recent rise in U.S. government bond yields, as well as the increasing differential between those yields and government bond yields in Germany, with boosting demand for the greenback. Higher interest rates typically attract investors to a currency because they offer a higher rate of return.
Write to Daniel Kruger at Daniel.Kruger@wsj.com