The U.S. dollar rose for a second day on Wednesday on optimism that a trade deal will brighten the U.S. economic outlook, while the Japanese yen weakened after the government saw weak demand for 40-year bonds.

Pessimism about the U.S. economy has eased after Trump delayed plans to impose 50% tariffs on European Union imports over the weekend and following a deal with China earlier this month to reduce tariffs imposed on each other.

"The quick reversal of tariff threats against Europe over the weekend has improved risk appetite and reduced negative perceptions about the U.S. growth trajectory, which is boosting the dollar," said Karl Schamotta, chief market strategist at Corpay.

Investors are also focused on Nvidia's (NVDA.O) earnings, due after the stock market close on Wednesday, which are likely to influence risk sentiment. Strong results are likely to boost the U.S. currency, Schamotta said.

The Federal Reserve will release minutes from its May 6-7 meeting on Wednesday, although they are unlikely to provide any major surprises.

The Fed kept interest rates unchanged at this month's meeting and said the risks of higher inflation and unemployment have increased.

Stronger consumer confidence data on Tuesday reinforced the view that the U.S. economy remains solid, and until there are clear signs of weakness, the U.S. central bank is expected to prioritize inflation in its monetary policy decisions.

SUPER-LONG SELLING

The euro was last down 0.14% against the greenback at $1.1312. Against the Japanese yen, the dollar gained 0.33% to 144.8.

The dollar index rose 0.23% to 99.75.

Demand at an auction of 40-year Japanese government bonds on Wednesday fell to its lowest since July, amid a selloff in super-long debt this month.

The yen weakened about 1% against the U.S. dollar on Tuesday on a report that Japan would consider cutting issuance of super-long bonds following a recent sharp rise in yields.

Weak demand for long-dated debt globally has drawn attention to worsening government deficits. Traders were also watching progress on a budget and spending bill in the U.S. Congress that is expected to add trillions of dollars to the debt.

The Australian dollar weakened 0.42% against the U.S. dollar to $0.6416.

Data earlier showed that Australian consumer inflation held steady in April, keeping expectations for further interest rate cuts largely intact.

The New Zealand dollar was last up 0.07% at $0.595.

The country's central bank signaled that easing may be closer to an end than some markets had expected, as it cut interest rates by 25 basis points as expected. (alg)

Source: Reuters