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The dollar rose to a nearly five-week high against a basket of currencies Tuesday after President Trump and Congress reached a two-year agreement on government borrowing caps and spending limits.
Morgan Stanley analysts say the U.S. Treasury can now increase short-term borrowing to replenish its reserves. At the end of April, the U.S. cash reserve was $423 billion, and has now fallen to about $195 billion.
Increased borrowing in the United States will drain money from the banking system, which is seen as supporting the dollar.
"Excess reserves should be reduced to support [the dollar]," Hans Redeker, Gek Teng Khoo and Sheena Shah, strategists at Morgan Stanley, wrote in a study.
The attractiveness of the dollar was boosted after the International Monetary Fund (IMF) raised its economic growth forecast for the United States this year and lowered its global economic growth forecast. A Bloomberg report says U.S. negotiators will travel to China on Monday for face-to-face trade talks with Chinese officials. The report also supports the dollar.
In late U.S. trading, the dollar index rose 0.47% to 97.716, hitting 97.718 at one point, its highest level in about five weeks.
EUR = EBS weakened across the board as investors prepared for the ECB's new stimulus measures. The bet on the ECB to cut deposit rates by 10 basis points has been reduced in the interest rate futures market, but analysts expect the central bank to publish dove-biased policy guidelines and possibly provide more generous terms for planned multi-year loans.
"The market doubts whether the ECB will retain its limited policy tools this week, which is the driving force behind the weakening of the euro," said Joe Manimbo, senior market analyst at Western Union Business Solutions.


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