The dollar pared some of its gains in Asian trading on Tuesday but remained near a one-week peak versus a basket of peers as the German political impasse continues to weigh on the euro.
The dollar index, which tracks the U.S. currency against a basket of major peers, slipped 0.1 percent to 94.029, but remained near its overnight peak of 94.104, its highest since Nov. 14.
German Chancellor Angela Merkel, whose conservative bloc lost seats in September's election, said she would inform the German president that she could not form a coalition, after the pro-business Free Democrats withdrew from negotiations.
Merkel said she would prefer a new election to ruling with a minority, but Germany's president told the parties they owed it to voters to try to form a government.
U.S. Republicans are not anticipated to push major tax reductions through Congress this year, according to a majority of economists in a Reuters poll.
Against the Japanese yen, the dollar was marginally lower on the day at 112.59, above its overnight trough of 111.89 yen, which was its lowest since mid-October.
The euro was stable on the day versus the yen at 132.15 yen, after slipping as low as 131.16 on Monday, its weakest since Sept. 15.
The Australian dollar fell 0.2 percent at $0.7536, after dropping as low as $0.7529 previously, its steepest trough since mid-June.